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Case study: Asiana Airlines

By Kim Hyun-jung, Shin Eun-jai, Kim Soo-wook

Established in February 1988, Asiana Airlines was created with thesupport of the government. The initiative was to operate a secondnational carrier in order to diversify the airline industry, which had beenmonopolized by Korean Air.

Challenge

Competition in the airline industry has become fiercer than ever. Eachcompany is implementing aggressive service improvement policies fora larger market share. The big carriers have declared a war againstlow-cost airlines, which are threatening their existing field of expertise.Budget airlines are holding promotional events, providing heavydiscounts to lure travelers who would otherwise choose the service ofmore reliable and long-established carriers such as Asiana Airlines.

Furthermore, airlines are drastically innovating their in-flight services

and reinforcing their offline and online marketing. Last year, Korean Airtook measures to introduce over 35 new aircraft for medium- and long-distance flights alone, and to redesign all its cabins from head to toe.Competition has made companies remain alert and innovative toconstantly impress their customers.

To deal with this competition, Asiana Airlines recently decided to makea bold investment in restructuring its existing operation by introducingnew business class seats, adding new aircraft and introducing new

technology.

Strategy

1. Carriers within Carriers (CWC)

One of the competitive practices implemented by non-budget airlinesis the introduction of Carriers within Carriers (CWC) to cope with the

industry turbulence coming from price competition. The idea is tocreate a low-cost subsidiary to face off with low-cost carriers more

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Lessons

Suggesting for cost leadership and differentiation strategies as the

most important generic tools for firms to succeed in the long-term,Michael Porter argued that these two types of strategy had a trade-offrelationship and were not necessarily compatible. Asiana Airlines isliterally stuck in the middle between the market leader Korean Air andlow-cost carriers. Asiana Airlines has for now safely opted to invest inAir Busan by leasing several aircraft out in order to preserve its originalbrand value and compete partially with low-cost carriers. At the sametime, it has been innovating its services.

Whether Asiana Airlines will maintain its record-high performance of2010 depends on how effectively the company can overcome thedilemma _ whether it should follow Korean Airs reliable brand image,or go after price leadership adopted by budget airlines.

When the market heats up, most companies choose diversecompetitive strategies to survive. However, the most effectivealternative is to go my way and focus on the firms own corecompetences. This means that managers should decide betweengiving more weight on the differentiation strategy, or on the cost

leadership strategy in order to become a successful market leader.Fortunately, Asiana seems to be slipping little by little away from itsposition of being stuck in the middle by sculpting a brand image thatinspires more creativity and innovation in customer service. In thatsense, if Asiana succeeds in differentiating itself with a solid customer-oriented service system, it is on the right track to acquire a genuinecompetitive advantage in the market.