Strengths, Weaknesses, Opportunities and Threats Analysis for AirAsia

1.0 Strengths

Ø Air Asia has a very strong management team with strong links with governments and airline industry leaders. This is partly contributed by the diverse background of the executive management teams which consists of industry experts and ex-top government officials. For example, Shin Corp (formerly owned by the family of former Thai Prime Minister - Thaksin Shinawatra) holds a 50% stake in Thai AirAsia. This has helped AirAsia to open up and capture a sizeable market in Thailand. With their strong working relationship with Airbus, they managed to get big discount for aircraft purchase which is also more fuel efficient compared to Boeing 737 planes which is being used by many other airlines

Ø The management team is also very good in strategy formulation and execution. The strategy that they have formulated at the beginnings was a clever blend of proven strategies by other low cost airlines is US and Europe. They are Ryanair’s operational strategy (no frills, landing in secondary airport), Southwest’s people strategy (employee comes first) and Easyjet’s branding strategy (linking with other service providers like hotels, car rental).

Ø AirAsia’s brand name is well established in Asia Pacific. Besides the normal print media advertising & promotions, AirAsia’s top management also capitalised on promotions through news by being very “media friendly” and freely sharing the latest information on Air Asia as well as the airline industry. Their partnership with other service providers such as hotels and hostels, car rental firms, hospitals (medical tourism), Citibank (AirAsia Citibank card) has created a very unique image among travellers. Alliance with Galileo GDS (Global Distribution System) that enables travel agents from around the world to check flight details and make bookings have also contributed to their string brand name. Air Asia’s local presence in few countries such as Indonesia (Indonesia AirAsia) and Thailand (Thai AirAsia) have successfully “elevated” the brand to become a regional brand beyond just Malaysia. The links with Manchaster United (one of the world’s most famous football teams) and AT&T Williams Formula One team have further boosted their image to a greater extend beyond just the this region

Ø AirAsia is the low cost leader in Asia. With the help of AirAsia Academy, AirAsia has successfully created a “low-cost airline mentality” among their workforce. The workforce is very flexible and high committed and very critical in making AirAsia the lowest cost airline in Asia.

Ø The excellent utilization of IT have directly contributed to their promotional activities (email alerts and desktop widget which was jointly developed with Microsoft for new promotions), brand building exercise (with over 3 million hits per month and on the most widely surfed booking engines in the world) as well keep the cost low by enabling direct purchase of tickets by consumer thus saving on airline agent fees

2.0 Weaknesses

Ø Air Asia does not have its own maintenance, repair and overhaul (MRO) facility. It may be a good strategy when they first started with only Malaysia as the hub and few planes to maintain. But now, with few hubs (Malaysia, Thailand and Indonesia) and over 100 planes currently owned and about another 100 planes to be received in the next few years, AirAsia have to ensure proper and

continuous maintenance of the planes which will also help to keep the overall costs low. It is a competitive disadvantage not to have its own MRO facility

Ø AirAsia receives a lot complaints from customers on their service. Examples of complaints are around flight delays, being charged for a lot of things and not able to change flight or get a refund if customers could not make it. Good customer service and management is critical especially when competition is getting intense.

3.0 Opportunities

Ø There are 2 major events that are taking place now or going to take place in less than 6 months from now. First, is the ever increasing oil price. Second, is the “ASEAN Open Skies” agreement that has been reached.

Ø The increasing oil price at the first glance may appear like a threat for AirAsia. But being a low cost leader, AirAsia an upper hand because its cost will be still the lowest among all the regional airlines. Thus, AirAsia has a great opportunity to capture some of the existing customers of full service and other low cost airline’s customers. However, there will be also some reduction in overall travel especially by casual or budget travellers.

Ø The “ASEAN Open Skies” allows unlimited flights among ASEAN’s regional air carriers beginning December 2008. This will definitely increase the competition among the regional airlines. However, with the “first mover” advantage as well as its strengths in management, strategy formulation, strategy execution, strong brand and “low-cost” culture among its workforce, this agreement can be seen as more of an opportunity.

Ø There is also some opportunity to partner with other low cost airlines as Virgin to tap into their existing strengths or competitive advantages such as brand name, landing rights and landing slots (time to land).

Ø The population of Asian middle class will be reaching almost 700 million by 2010. This creates a larger market and a huge opportunity for all low cost airlines in this region including AirAsia.

4.0 Threats

Ø Certain rates like airport departure, security charges and landing charges are beyond the control of airline operators and this is a threat to all airlines especially low cost airlines which tries to keep their cost as low as possible. For example, Changi airport in Singapore charges SGD21 for every person who departs from Singapore.

Ø AirAsia’s profit margin is about 30% and this has already attracted many competitors. Most of the full service airlines have or planning to create a low cost subsidiary to compete directly with AirAsia. For example, Singapore Airlines has created a low cost carrier Tiger Airways.

Ø Users’ perception that budget airlines may compromise safety to keep costs low.

Industry Analysis

An industry analysis was performed to assess the budget airline industry.

1. Bargaining Power of Supplier

Overall, power of supplier is high as there are limited (availability of) suppliers (only Boeing and Airbus), the switching cost is high (i.e. airplanes and their maintenance are costly), and there are few substitutes for airplanes (i.e. air travel covers longer distances in a shorter period of time).

2. Bargaining Power of Buyer

As there are almost no switching costs for customers switching from one budget airline to another, the bargaining power of buyer is moderately high. Moreover, customers are able to compare prices of budget airline via the Internet, giving them more choices.

3. Threat from Substitutes

Although there are several substitutes (i.e. trains and ships), the geographical structure of Asia has made air travel an efficient, viable, and convenient mode of transportation. Hence, threat from substitutes is moderately low.

4. Threat from New Entrants

Though the entry barriers are high (i.e. capital requirement and government restrictions such as air service agreements), threat from new entrants is moderately high. With increased deregulation by Asian governments, and growing demand for affordable low fares amongst budget-conscious travelers, competition increased (i.e. more full-service airlines launched their own budget airlines). For example, AirAsia’s success prompted several incumbents to start or being to consider starting their own budget airlines, which had the advantages of brand marketing and loyalty, and other benefits which overflowed from their parent companies.

5. Rivalry Intensity

Intensity of rivalry is moderately high due to the increased competition (with more competitors wanting a part of this growing lucrative market), and high exit cost. Exhibits 8 and 9 provide information on low-cost carries in Asia: from 1 budget airline (Cebu Pacific Air) in 1996 to 16 budget airlines by 2005, the entry of more low-cast airlines dramatically increased competition. AirAsia also faced competition from a broad range of airlines, ground transportation, and sea services.

Below are the opportunities and threats that have been identified using the PESTL model:

1. Economic

Opportunities

Although, economic downturns (e.g. global financial crisis) would result in a downturn in the industry, it can prove to be an opportunity for AirAsia. For example, as a result of the global economic downturn (i.e. worldwide stock market plunge), aircraft leasing costs were reduced by about 40%; creating an environment with lesser competition and enabled AirAsia to lease their aircraft at a cheaper rate (leading to cheaper ticket prices for customers).

Threats

Fluctuating oil prices would have an impact on operation costs when fuel prices are too high. Yield and profitability would decrease for AirAsia if fuel prices become too high.

Overall, although such economic events are unavoidable, the opportunities outweigh the threats, presenting AirAsia opportunities to expand its business: during times of economic downturns, demand for affordable low fares would increase amongst budget-conscious travelers, especially from leisure and corporate travelers.

2. Social/Cultural

Opportunities

In recent years, rapid economic growth resulted in a burgeoning middle class within Asia’s large population. Together with increased in trade and tourism within and into Asia, demand for air travel increased; 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 low as 10-20% of those charged by full-service airlines.

This presents AirAsia with opportunities to differentiate itself from competitors by adding customer services or operation as full service airline with low fare, giving it a competitive advantage (i.e. 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 card; further increasing brand awareness and value for customers.

Threats

If AirAsia is not careful in its implementation to differentiate itself from competitors, it could incur an (unnecessary) increase in operation cost in producing value-added services.

Overall, the social/cultural aspect presents AirAsia with more opportunities than threats, as long as it does not unnecessarily increase operation cost in producing value added services.

3. Technological

Opportunities

By utilizing information technology, AirAsia was able to the first airline in Southeast Asia utilize e-ticketing and bypass traditional travel agents. This enabled the airline to save on the cost of issuing physical ticket (i.e. estimated at US$10 per ticket), and eliminated the need for large and expensive booking and reservation systems, and agents’ commissions.

Threats

If not handled properly (i.e. backup systems and maintenance), there would be risk of system disruption due to heavily reliance on online sales. Hence, the technology aspect would pose to be a threat if AirAsia’s systems are not properly backed up and maintained (i.e. contingency plan in the event of a system disruption).

4. Global/Demographic/Political/Legal

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 important 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; with the pursuit of non-business goals, profits were often sacrificed for the sake of national objectives.

Opportunities

Privatization and deregulation of governments presented opportunities for new routes and airport deals through open-skies agreements between countries, or the permission of the entry of private airlines, reducing the constraints for international airlines. For instance, in 1997, Malaysia signed an “open-skies” agreement with the United States; such deregulation present new airlines (i.e. AirAsia) with the opportunity to access domestic routes. Having access to domestic routes could lead to the trial of long haul flights to attain and penetrate an undeveloped market share (i.e. new routes to utilize its new aircraft).

Threats

However, globalization can also result in global uncertainty (i.e. accidents, terrorist attacks, and disaster), which can affect customer confidence. Once customer confidence is affected, AirAsia would face the threat of losing its profitability, or even bankruptcy. Being a low-cost carrier, AirAsia is subjected to subjected to aviation regulations, government policy and government restraints (i.e. government protection in favor of full-service airlines), and dependent on the geography and infrastructure of Asia, and the travelling preferences of customers.

Overall, there are more threats than opportunities. As AirAsia is are subjected to government interference and regulation on airport deals and passenger compensation, AirAsia can only minimize its negative impacts by selecting routes (countries) that are favorable.

References:

• Ireland, R D, Hoskission, R E & Hitt, MA 2009, The management of strategy concepts, 8th edn, South-Western Cengage Learning, USA

• Singh, K, Pangarkar, N & Heracleous, L 2010, Business strategy in Asia a case book, 3rd edn, Cengage Learning Asia, Singapore

Introduction

The company chosen for this report was AirAsia. The assignment required that:

• A management report of 3,500 to 4,000 words is written on an organization. The report should describe, analyze and assess the impact of external and internal factors on the organization and evaluate the organization’s responses

• In relation to technological change, analyze how it influences policies and decision making, critically evaluate the effectiveness of the organization and recommend areas for improvement in response for the organization.

The company has been analyzed using the aforementioned procedures and tools; and conclusions and recommendations have been reached from these tools.

3. Background to AirAsia

3.1. Organization Definition

A ‘no-frills’ airline is defined as one “That uses charter and/or scheduled flights to offer bargain-basement fares. Budget airlines usually land at and take-off from secondary airports, do not provide in-flight meals or refreshments, and may not even offer numbered seat allocation. Their ticket prices are fixed and non-refundable in case of a cancellation or no-show”. (i)

3.2. Looking at the Organization

AirAsia is one of the fastest growing airline companies in the world, with a reputation as a low-cost, ‘no frills’ airline. It was originally a government owned business; yet, due to heavy debt, it was bought by former Time Warner executive Tony Fernandes in 2001, and this is where the real story begins.

Their vision, under the slogan "Now Everyone Can Fly", is “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”,(ii) and their mission is, under the banner of 'Affordable Airfares', “To attain the lowest cost so that everyone can fly with AirAsia,” without any compromise to Flight Safety Standards, as well as, creating a world wide recognizable brand with a ‘family’ atmosphere within working conditions for employees. (iii) These statements clearly show AirAsia’s value. Cost advantages through operational effectiveness and efficiency; coupled with strong brand marketing, go straight to the customer.

Within two years, Tony Fernandes had gained recognition with numerous awards, including ‘CEO of the Year’ by Business Times and American Express and ‘Developing Airline of the Year 2003’ by Airfinance Journal. (iv)

4. Industry Framework Analysis.

4.1 Porter’s 5-Forces Model (Appendix 1)

From the analysis model, it is possible to conclude that supplier power is high due to monopolization of the industry by Boeing and Airbus. However, this is countered by the relative poor performance of airlines in the recent past. Although there are only two companies to purchase or lease airplanes from, the global crisis has limited new entrants into this market and reduced upgrading of planes for the immediate future.

Buyer power is reasonably high because potential customers have access to price information through the internet and mobile technology; thus, they can find cheaper prices easier. Furthermore, changing from one airline to another has no costs and is easily achieved.

Competition rivalry is currently in AirAsia’s favour. With price being the main battlefield of competition, AirAsia leads the way due to its low operating costs. However, there are more

competitors entering the market that have major carriers as backers or owners which may lead to an ‘unrealistic’ price war in the future.

Fortunately, with the Asian region being so vast and with its geographic ‘make-up’, air travel is not only a viable service but also the most efficient and convenient. This makes the threat of substitution low to AirAsia. Travelling from, for example, Jakarta to Kuala Lumpur would be a time-consuming exercise. Moreover, with border controls remaining incredibly bureaucratic in certain areas, i.e. Thailand-Cambodia, then flying is easily the most suitable travel plan.

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

4.2 External factors using PEST

PEST breaks down the external influences on a business, which a company will have some influence on, but in the majority of the time will have to project, plan, adapt and react to with its own strategy, in order to anticipate and analyze forces within the general environment and their impact.

PEST Analysis – Fig.2

POLITICAL ASPECTS ECONOMIC ASPECTS

• Political uncertainty in Malaysia with Prime Minister Abdullah Badawi set to step down in March 2009.

• Deputy Prime Minister Najib Razak is expected to take over the ruling-coalition party, but with a cloud of allegations.

• Political unrest in Thailand recently when anti-government protesters recently blocked flights for a week at Bangkok's main airports.

• ASEAN nations have been pushing Indonesia to scrap its Rp.1 million ‘Fiscal’ charge to all Indonesian citizens and expatriates when leaving the Republic of Indonesia either for business or tourism.

• Resurgence of violence in Southern Thailand – Northern Malaysian border.

• Malaysia granted exploration rights in oil-rich waters off the coast of Borneo; increased tensions with Indonesia.

• Terrorism has occurred in Thailand and Indonesia; most notably the Bali bomb of 2002.

• AirAsia holds 49% of Thai AirAsia with 1% held by a Thai individual. The remaining 50% is held by Shin Corp., owned by the former Thailand prime minister, Thaksin Shinawatra. Shin Corp. has financial strength, synergy in information technology and telecommunications, which support AirAsia Internet and mobile phone bookings. • National trends:

- Malaysia's economy may expand as little as 4 percent in 2009, growth will probably be between 5 percent and 5.5 percent this year, below the official 2008 forecast of 5.7 percent. (v)

- Real GDP % Growth forecast is from 5.1 in 2008 to 1.4 in 2009. (vi)

- Interest rates % dropped from 3.5 in Jan.2008 to 2% in Jan.2009. (vii)

- The inflation rate may fall below 4 percent before the second half of 2009. (viii)

- Unemployment has remained constant at an average of 3.6% in July 2008 to 3.1% in Oct.2008. However, the global credit crisis has raised fears that “the unemployment rate could double to 6 per cent by 2010 if global demand remains weak”. (ix)

• International trends:

- Malaysia ranks 20th for its ease of doing business out of a total of 181 economies surveyed in the World Bank Doing Business 2009 report. (x)

- International global credit crisis has resulted in increasing unemployment and ‘global trade will shrink by 9 percent this year’ (xi)

- Asian governments are defending less national-flag carriers; in order to revitalize under used airports and increase tourism spending.

SOCIAL ASPECTS TECHNOLOGICAL ASPECTS

• Demographics:

- Ethnic :Malay 50.4%, Chinese 23.7%, indigenous 11%, Indian 7.1%, others 7.8%. (xii)

- Religions: Muslim 60.4%, Buddhist 19.2%, Christian 9.1%, Hindu 6.3%, Confucianism, Taoism, other traditional Chinese religions 2.6%, other or unknown 1.5%, none 0.8%. (xiii)

- Languages: Bahasa Malaysia (official), English, Chinese (Cantonese, Mandarin, Hokkien, Hakka, Hainan, Foochow), Tamil, Telugu, Malayalam, Panjabi, Thai.

• AirAsia operates in SE Asia with many countries and languages.

• SE Asian countries have diverse cultures and religions; troubles continue particularly on the Thai-Malaysian border and Indonesia.

• Individualism is less common than cooperation in Asian business values.

• Acceptance of laws and rules can vary; many Indonesians, for example, rarely abide to baggage allowance rules and these rules are seldom enforced due to corruption and indolence.

• Urbanization: 7 out of the top 10 most populated cities in the world (>14 million) are predicted to be in Asia by 2015, according to the UN.(xv) • Over 80% of AirAsia’s tickets are sold on-line; thus, eliminating travel agent fees.

• Ticket-less travel and ‘e-tickets’ have lowered distribution costs.

• AirAsia has the youngest fleet in Asia with the new Airbus A330-300; allowing state-of-the-art technology and high fuel efficiency.

• Information and communications technology (ICT) has allowed AirAsia to reduce operating costs and provide fast, efficient service in areas including: check flight schedules, book seats, electronic check-in, and pre-order meals.

• New low cost terminal to be opened in Labu, Malaysia by 2011 will incorporate modern technology, more shops and be privately owned, resulting inn lower airport taxes and fares and reduced government bureaucracy.

4.3 Internal factors using a SWOT analysis.

The SWOT analysis is used to determine the strengths, weaknesses, opportunities and threats facing a business and allows the organization to attain its goals by prospering from opportunities, countering threats, solidifying strengths and correcting weaknesses.

SWOT Analysis – Fig.3

Strengths

• Blend of 3 strategies of proven airlines: Ryanair’s operational, Southwest’s people, and Easyjet’s branding.

• AirAsia has strong capabilities due to their multi-country position in Thailand, Malaysia and Indonesia.

• Competitive advantage is strong with the lowest mileage per seat price.

• Strong management team consists of industry experts and ex-top government officials.

• 50% stake of AirAsia Thailand held by Thaksin Shinawatra enabled opening up of Thai market with large share.

• Very strong brand recognition; strong marketing reach, distribution and awareness.

• Strategically located in heart of SE Asia.

• Leader in IT (ICT Award).

• New A320 fleet; strong relationship with Airbus allowed discounts on new planes; thus, reducing fuel costs.

• Consumer relations e.g. suggestion to have multi-lingual web-sites.

• Partnerships with PayPal and Citibank allow easy transactions of payments.

• Sponsorship deals with Manchester United Football Club and AT&T Williams formula 1 team increase global brand recognition. Weaknesses

• High fuel costs have resulted in a lower than expected profit for 2008.

• No MRO (maintenance, repair, overhaul) facility; thus, AirAsia cannot maintain its own planes. With an increasing fleet this is a competitive disadvantage.

• Large numbers of customer complaints.

• Non-central location of secondary airports.

Opportunities

• Low cost, sustainable philosophy allows new routes to be opened and exploit growing markets due to surging middle-classes in China and India. I.e. China, India, Pakistan & Bangladesh.

• AirAsiaX, new long-haul routes, to Europe, Australasia and US.

• Scrapping of Fiscal tax in Indonesia will encourage more overseas travel.

• Internet development and 3G coverage allows bookings to be done on-line.

• Higher fuel costs means less profitable competitors may be forced out of business.

• AirAsia Vista Gadget allows customers to access live information direct from the Windows Vista interface.

• Partnerships with Virgin to use existing strengths such as brand name, landing rights and time slots.

• Frequent flyer program; similar to those used by major carriers.

Weaknesses

• High fuel costs have resulted in a lower than expected profit for 2008.

• No MRO (maintenance, repair, overhaul) facility; thus, AirAsia cannot maintain its own planes. With an increasing fleet this is a competitive disadvantage.

• Large numbers of customer complaints.

• Non-central location of secondary airports.

5. Conclusions and Recommendations.

5.1 Conclusion and Recommendations reached from PEST analysis.

Politically, SE Asia could be in for some troubling times ahead. Firstly, there is political uncertainty in 2009 within three of AirAsia’s major bases: Malaysia, Thailand and Indonesia. All three countries will be experiencing change of government or elections in 2009. Indonesia will have its democratic elections with President Susilo Yudhoyono Bambang running for his second term. This is only the second ever full democratic election in Indonesia and tensions have been running high. In addition, Malaysia will change Prime Minister with Deputy Prime Minister Najib Razak taking over in office; yet, there are allegations of corruption which may affect the transition. Finally, Thailand has seen political uncertainty since the ousting of former Prime Minister Thaksin Shinawatra under corruption and fraud allegations. The airport has been closed down due to demonstrations and unrest remains; particularly, in the Muslim majority south, located near major tourist areas such as Koh Samui and

Koh Pan Nagn. However, the partnership with Thaksin Shinawatra has given Air Asia leverage in pursuing an aggressive takeover of market share in Thailand.

Economically, the current global crisis has affected Asia less severely than the West so far. This is possibly due to cultural aspects such as less credit or borrowing by the majority of people. Malaysia is expected to slow down economically in 2009, as well as Thailand and Indonesia. However, although the markets are relatively fragile, robustness and flexibility is high due to awareness and experience from the 1998 currency crisis.

In SE Asia, the main social issue will be the urbanization of the populations of some of the key countries within AirAsia’s market and demographic. Countries like India, China and Bangladesh are booming at the moment and are creating large middle-classes within their respective countries. The more people are employed in cities over 15 million people, the more need there will be for journeys to homes in the countryside. This market is a potential opportunity for AirAsia in the future, with the right cultural and nationalistic approaches made.

AirAsia is leading the way in terms of integrating technological advances into its business model. The use of the internet to buy and sell tickets has significantly reduced operating costs for AirAsia because ticket agents are not needed. Furthermore, newer airplanes being produced are reducing fuel costs and becoming more efficient.

5.2 Task 2: Technological Change

5.2.1 Analyze Policies and Decision Making

The rate of technological change in all facets of society is rapidly changing the areas businesses work in and the global environment as a whole. The aviation industry has recently become under pressure with higher fuel costs and consumer awareness of the environment in particular.

In order to survive, companies are either adapting and being pro-active or failing. AirAsia ‘has been recognized as one of the WORLD’s most innovative companies by Fast Company magazine, making it the only ASEAN brand and the only airline to have made it on the “Fast 50” list.’ (xvi)

As a consequence, AirAsia has some current IT systems which allow it to gain competitive advantage.

Current IT Implementations

Yield Management System (YMS)

Also known as Revenue Management System; it understands, predicts and responds to customer behavior, in order to maximize revenue for the organization.

YMS operates on two levels:

1. Seat – the seat price is considered an opportunity to increase revenue. Seats are available at various prices at various points in time. Reservations done at a later point cost significantly more than one done earlier.

2. Route – the prices for destinations are adjusted with consideration to the demand.

To work effectively, both methods are used in conjunction with one another for all seats and all routes; thus, both seat and flight are effectively priced all the time.

Computer Reservation System (CRS)

AirAisa uses CRS provided by Open Skies by Navitaire, and it has had a huge impact on the operating procedure for AirAsia.

"Navitaire's Open Skies technology has truly enabled AirAsia's growth from 2 million passengers to 7.7 million passengers in less than two years. Open Skies scaled easily to accommodate our growth."

Tony Fernandes

CEO

AirAsia (xvii)

Open Skies is ‘an integrated web-enabled reservation and inventory system suite that includes Internet, call center, airport departure control functionality and more.’ (xviii)

In essence, it is a system that allows AirAsia to effectively by-pass the middlemen, in this case travel agents, and deal directly with the customer; thus, eliminating sales commissions paid to the travel agents. Customer data is centralized and helps AirAsia to track bookings and schedule flight activities in response to needs in real-time. Furthermore, the Open Skies system integrates with the already implemented YMS, so that both systems can be used in unison to maximize pricing and revenue, by providing information on bookings and schedules, and lowering costs of operations at the same time.

The recent surge in fuel prices in 2008 forced airlines to reduce costs wherever possible in order to survive. Fortunately, AirAsia already had the lowest operating costs of any airline in the world. However, this did not stop AirAsia looking into ways of avoiding potential problems in the future. The need for more fuel-efficient airplanes is now an integral part of reducing costs in the aviation industry.

5.2.2 Evaluate Effectiveness and Response

AirAsia has applied technological advances, for instance YMS and CRS, in advance of its competitors. The speed in there response has given them a platform that is being recognized in the IT industry, and appreciated by its customers. YMS and CRS systems allow customers to book flights on-line or via mobile devices and allow the first ticket-less travel option in Asia. As a result, allocation of boarding passes and check-in via the internet and mobile devices advanced the growth of AirAsia as ‘AirAsia’s online booking accounts for 70% of its total booking, recording a remarkable 260 million impressions per month.’ (xix)

AirAsia recently secured the purchase of fifteen new Airbus A320-200 planes with financing help provided by Barclays Capital. These newer planes are technologically advanced in various departments:

1. Lower fuel burn.

2. Lower maintenance costs.

3. Increased capacity.

4. Wider cabins.

5. Larger cargo payloads.

6. Cabin equipped with state-of-the-art touch screen management system.

7. Enhanced entertainment system.

The Airbus A320-200 will allow AirAsia to operate at lower costs due to the reduction in fuel charges and operating costs. In addition, they will be able to increase capacity on flights and maximize profits per flight.

5.3 Conclusion and Recommendations reached from SWOT analysis.

There is much strength for AirAsia at the moment. To begin, strategically it is strong with an organized management team, established ‘low-cost’ mindset with employees, and a sound strategic vision. Moreover, AirAsia has cemented itself as a front runner in the low cost industry with its early conception and aggressive product branding and marketing techniques. It has used IT to its advantage with the use of the internet and newer airplanes. Finally, it is beginning to establish its name and brand on the world stage with innovative and intelligent sponsorship deals.

Yet, where there is strength for AirAsia there are also some weaknesses. These weaknesses, however, do not seem to be overly dangerous. Higher fuel costs around the world, and fluctuating, unstable markets have made operational costs higher, especially for the airline industry. However,

this also means that companies with less profit margins than AirAsia may become redundant in the future; thus, opening up customer bases previously unavailable to AirAsia. In addition, AirAsia has a relatively poor reputation with customers, particularly due to their flight times and cancellations. Improvements need to be made in this area without increasing operating costs.

Opportunity is the golden word where AirAsia is concerned. With the dramatic increase in middle income earners in China and India especially, there is much potential for AirAsia to expand its routes and frequency of flights. Relaxation of the ‘ASEAN Open Skies’ laws means that, with AirAsia’s established number one position, low cost, strong brand and strategy execution, it is firmly established to overcome potential new entrants and increase market share in the future. Furthermore, increased access for Asian people to the internet, coupled with new and developing IT solutions allow AirAsia to bolster its reputation as an innovative and leading organization in terms of IT.

Potential threats to AirAsia come in the form of potential new entrants into the market from established full carriers like Singapore Airlines. However, low cost companies like AirAsia are positioned well to withstand any competition in this area. There are always threats from areas outside of AirAsia’s control such as terrorism and global conditions. Finally, AirAsia needs to be aware that system failures with the internet would seriously damage operations for such a technologically reliant company.