External Analysis Airasia
1.0 Introduction of AirAsia
In Malaysia, there are 3 main airlines which are Malaysian Airline (MAS), AirAsia, and Firefly. AirAsia Berhad is starting its operation in November 2004, which is listed on the main board of Bursa Malaysia. It start developing a low cost airline model (LCC) in Asia since 2001, it has grown from a domestic flight in Malaysia for more than 55 destinations served for 5 leading airline hub in Malaysia which are Thai AirAsia, Indonesia AirAsia, Philippines AirAsia and Japan AirAsia. AirAsia Group is one of the lowest cost airlines in aircraft size and the number of passengers it can load.
2.0 Air Asia
AirAsia is the Malaysia’s low-cost airline. It operates the local and an international flight is planned and is a lowest cost airline in Asia without any addition service. As a cheapest airline, AirAsia is a pioneer in Asia. This is also the first airline in global to achieve full flight tickets and distributed seats. However, by 5 February 2009, AirAsia has implemented distributed seats on all flights of AirAsia affiliates airlines. The main base is at the Kuala Lumpur International Airport (KLIA) and Low Cost Carrier Terminal (LCCT). AirAsia’s registered office is in Petaling Jaya, Selangor, and its headquarters in KLIA, Sepang, Selangor. AirAsia won the Best Low Cost Airlines World Award 2010. This airline was founded in 1993, and start operated in November 18, 1996. It was firstly founded by a government-owned conglomerate DRB-HICOM. In December 2, 2001, the debt-laden airline bought by the former Time Warner chief executive Tony Fernandes’s company Tune Air Sdn Bhd for the token sum of RM1. Fernandes continued significant recovery engineers, earn profit in 2002, at the KLIA hub at breakneck speed introduction of new route, and act as a monopoly company in Malaysia Airlines fares as low as RM1. (History of AirAsia, June 2013) AirAsia slogan is ‘Now Everyone Can Fly’. Read another article “SWOT Airasia“
(Slogan of AirAsia, June 2013)
3.0 Porter’s five forces framework
3.1 The threat of entry –medium-low:
Capital requirements and economies of scale are two potential barriers to block the new competitors enter into the market. Under normal circumstances, the internet technology has made it easier for new companies to enter the industry through the reduction of the elements of other organizations such as establishment of effective sales, access an existing suppliers, sales distribution channels, physical assets such as building and machinery, or access an existing suppliers and sales distribution channels. There is a high barrier to enter the airline industry since it requires the high capital to set up everything. In Malaysia, there are 3 main airlines which are MAS, AirAsia, and Firefly. There are always possibilities that another airline will be formed to serve the existing market. AirAsia’s low cost strategy is to maintain the efficiencies to support the lowest air fares. In addition, brand awareness is a very important in the industry. So, to enter into market is not only capital intensive but also need to spend a little time to build their brand awareness.
Customers always purchase the products or services which they totally believe are called brand loyalty. Example, many people like to choose AirAsia rather than MAS because of the lowest air fares or service. AirAsia is the first airline to let its customer book and purchase tickets online. This makes the AirAsia’s website very famous to many customers. Although the other competitors create their own website to compete with AirAsia’s website is quite difficult. The site is simple to use and user-friendly so the other competitors are hard to make their website famous to customers. Thus, there is a high barrier for other new entrants into this market. If other competitors want to compete with AirAsia, they have to fulfill and make sure their competitive advantage is better than AirAsia.
3.2 Bargaining power of supplier – high-medium:
Concentration of the suppliers and the availability of alternative suppliers are important factors in determining supplier power. Example the small aircraft manufacturers such as the exclusive supplier of engines will have the great power of bargaining. Other factors include whether the supplier can survive without a particular buyer, or whether the buyer could be a threat to self-production of the necessary supplies. In this case, suppliers of AirAsia are fuel supplier, foods supplier, merchandise supplier and aircraft supplier.
There are only little aircraft supplier companies in this industry, either Airbus or Boeing. AirAsia is using the Airbus 320 as their main airplanes. Besides that, the technology used by Airbus is more advance. AirAsia have to rely on Airbus engineer to conduct the aircrafts’ maintenance. Therefore in this condition the bargaining power of supplier is high. Other suppliers like fuel and foods suppliers are supply to AirAsia base on the market environment. They could not increase their price too much because they have to do the long term business with AirAsia.
3.3 Bargaining power of buyers – medium-low:
Customers with the price sensitive become the intensify customers to AirAsia. As advertising and buyer information educates customers about the full range of price and product options available in the marketplace, their power on an organization increases. This is especially true when an organization’s most sales are depend on one or two large customers. The IT world had appeared since 20th century. The more internet customers have become more powerful that can influence AirAsia, especially if AirAsia unable to provide it low cost fares to them. AirAsia’s air fares with the fix lowest prices in the airlines industry makes its customers cannot negotiate the prices with them. Once the customers book their air tickets, the money for buying the tickets will be forfeit. So, the cost for customers to switching to other airlines is high. Besides that, customers can choose to take bus, ship, car, or train to their destination. Switching costs and time consume will consider by customers if they prefer these as their transportation. Therefore, the bargaining power of buyers is low. In the other situation, AirAsia is not the one airline company that operates in Malaysia. In addition, other competitors offer their price is not much different with AirAsia (Firefly). Customers will choose their own facilities and flight schedule which are most suitable for them. Example MAS is protected by the government on the road to Sydney and Seoul. The customers who want to travel to there have to wait for the AirAsia schedule or switching to other airlines. Thus, the bargaining power of buyer is medium in here.
3.4 Threat of substitute products or services – medium-low:
The threat of substitute products or services is a measure of the difficulty to customers can find alternative products or services in the industry. If customers can find substitute products or services easily, there will be a competition and the profit will be lower. If there are little or no competitive alternative, the competition will be weaker and the profits will be higher. There are few substitute services to AirAsia. Customers don’t want to take airplane and can switch to train, ship, car, or bus travel, but they have to queue for long time although the switching cost is low. For example travel from Kuala Lumpur to Thailand, customers can choose to travel by bus or airplane. However, there is more convenient and less time consuming compare with travel to Thailand with bus. In other hands, AirAsia as one of the most profitable low-cost-carrier in Asia, there is difficult for competitor to become an alternative airline in the market. Thus, the threat of substitute products or services is low to AirAsia. Read also about Ene Ticker
3.5 Competitive rivalry within an industry – medium-low:
Competitive within an industry is a measure of the intensity of competitive behaviour between companies in the industry. Is the competition among firms aggressive and cutthroat, or do competitors focus more on customer service rather than attacking each other? Both industry attractiveness and profitability decrease when competition cutthroat. In Malaysia, there are few airlines compete in the market only. Therefore, to expand its company, AirAsia has to grab the market share from its competitors with the low cost strategy. Besides that, AirAsia is able to control the price cuts/war in this industry to maintain they profits. If other airline companies could not compete in the price wars, customers now will choose or switch to AirAsia that offer them the best prices and services. By the way, there is possibility of new competitor with the low cost strategy, which can compete in this market. Example, Firefly is a part of low cost carrier in Malaysia that has fit AirAsia’s concept. So, AirAsia has to keep revise their price to maintain their market share in this industry.
AirAsia is using the cost leadership strategy to tackle their customers with the lowest air fares. Cost leadership means that the production costs of an acceptable quality of products or services which allow companies to provide the products or services at the lowest price in the industry ever lower production cost than other competitors. Cost leadership protects the company from major industrial powers to prevent new entrants; they will have to match the low cost and low price. Cost leadership also forces down the prices of alternative products and services attract bargain-seeking buyers, and increases bargaining power with suppliers, to keep their prices low if they want to do business as the cost leader. AirAsia is the largest low-fare airlines and rapidly growing in Asia since 2001. It creates and maintains their competitive advantage by offering the cheaper prices and services than competitor’s price. The goal of AirAsia is always looking to cut costs across the value chain from competitors to gain the greatest cost advantage. AirAsia has changed the point of view that air travel is luxury and is for the upper segment of the population. ‘Now everyone can fly’ clearly explain the value of AirAsia.
Their cost advantages create through the effective and efficient operations directly to the customers. Customers now can enjoy the low air fares. In others hand, AirAsia can capture those segment who could not afford the air fares previously and the specific market price sensitive customers. AirAsia using the strategy to reduce the large part of maintenance and management costs by replace the Boeing 737-300 aircraft with Airbus 320 to form a single maintenance procedure. All handling and administrative procedure will become more easy since there is only one kind of aircraft. AirAsia has to rely on the Airbus engineer to do the aircraft maintenance because this is the after sales service. Therefore, cost saving issues arises on this and the bargaining power of supplier is very high.
Other than that, AirAsia search for the cheapest food suppliers to support on its low cost strategy. With the variance of foods suppliers, it can negotiate or switch to the other suppliers if the costs are high. It is also the first mover in Malaysia airline industry who achieve paperless e-ticket ride with low fare no frills airline. The prices are low and lead to a larger number of seats sold is AirAsia’s big selling point. Customers like to choose AirAsia because their fares are significantly lower than other airlines. So, the threat of new entrants and the threat of substitute are low. Customers like to purchase the tickets from website because the fares are cheaper than the frontline counter price with a higher service charge could also reduce the costs. This encourages their customers to coordinate with the e-tickets strategy. The bargaining power of buyer is low because they have to follow the price rates and cannot negotiate with the prices that set by AirAsia. Besides that, AirAsia can save the cost to training and recruit the staff to do the booking and check in works with implemented the paperless/e-tickets strategy. This can reduces the employees training time and learning curve.
Meanwhile, the shuttle bus service charge and advertising plan also carry the company’s revenue sources. They are doing the promotion package with the low shutter service charge to their customers to ensure them can reach airport on time. Their advertising plans are more effective and efficient compare than other airline companies. Normally they will advertise on their own website or cooperate with other agencies to contribute the hotel plus air fares packages. They can save costs by reducing the use of billboards. Compare with the existing airlines, AirAsia is born as a new low-cost airline in Asia and is not threatens by other competitors in Malaysia. Therefore, the competitive rivalry is low.
In conclusion, competition between the aircraft industry is very difficult nowadays. Every aircraft company in global is trying to make some strategies different to their competitors in the industry competition. To compete in the business environment, companies need to create a strategy to achieve long term goals to a success business. The strategic management becomes more important for some reason such as doing the international business to survive their business, and the electronic business becomes the main technique in all the industry now. AirAsia can success is based on a no frills, low-cost, simple operation and a convenient air travel options. The company has successfully delivered a consistent low fares to maintain cost efficient operations in every parts and keep it simple. AirAsia comes out strategies that make the competitive position of the company to perform the different activities than competitors or perform similar activities in different ways to accomplish the successful business. The other reasons are international business and implement the electronic business strategy. Therefore, by eliminating expensive flight services provided, selling tickets to passengers, reduce manpower, facilities and overhead costs, AirAsia has achieved a successful low cost strategy which makes it able to charge lower prices to reach high capacity, market share and profits.
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Williams, C. (2008). Effective Management. USA: Thomson Higher Education. http://airlines-malaysia.com/tag/history-of-airasia/, History of AirAsia, June 2013 http://www.airasia.com/my/en/about-us/corporate-profile.page, Slogan of AirAsia, June 2013