5.0 Key Criteria of Selecting Strategy
It is vital for a company to focus on what they want and capable of. When deciding the main strategy of a company, the vision of the company must be clearly understood. Air Asia has the vision of being the lowest cost short-haul airline in every market it serves (Air Asia.com, 2010). In fact, the company is trying to be the cost-leader in the airline industry. The first criteria of the strategy options would be cost leadership. The company is trying to offer flights seat with the lowest prices. Next criteria that should be focused on are customer needs.
5.1 Differentiation Strategy
In order to gain market share, Air Asia needs to have strategy which differentiate the company from other airlines. As a budget airline, Air Asia is competing with other budget airline such as FireFly and Jetstar Airways. Economic downturn has caused the consumers nowadays to be more prices sensitive. Therefore, the market segments which prefer budget airline are increasing. In order to win the competition, offering low price flight tickets will do. A downward differentiation or simplification strategy is aligned with Air Asia lean cost structure. The customer of Air Asia purchase tickets online and print the tickets by themselves. This method can reduce Air Asia human resource cost, paper cost, and reduces amount of sales counter. In 2009, 76% of total revenue of Air Asia comes from online sales (17th Annual General Meeting, 2010). As goal of the airline is just to “move someone from one to another place” cheaply, Air Asia does not offer free foods. In fact, there are large portion of customer who don’t feel like having a meal during their short flight. This action meets the customer needs.
5.2 Diversification Strategy
Diversification Strategy is when a company offers new product or services into new market. It is very risky and the company has to do a lot of market research before they execute the strategy. There are several types of diversification strategy such as horizontal and vertical integration. Horizontal diversification means the company will try to develop or do some activities that are in addition to farther company’s present activities. For example, Air Asia has entered Indonesian market by joining with Awair, which is an Indonesian airline company. The joining helps Air Asia to have better understanding on the Indonesian market. Better understanding towards the market helps Air Asia save the cost of market research and time consuming on adopting into the Indonesian airline market (.docstoc, 2010). If Air Asia had vertical diversification, the company will not work with any agents and many Air Asia ticket spot will be set up. The benefit of this strategy is delivery of good service wanted by Air Asia towards customers. There is possibility the agents might spoil Air Asia image by providing poor services. The company can maintain the service quality as well as customer’s satisfaction. Meanwhile, Air Asia will have to spend a certain amount of money for setting up the outlets and human resource expenses.
5.3 International Strategy
Expand the market internationally mean sell the product or service in new geographical market. To the date, Air Asia has opened up many international routed such as Australia, Indonesia, Hong Kong, China, Bangladesh, Iran, Japan, Singapore, Taiwan, Thailand, South Korea and other countries. Even though opening up more routes can gain more market shares and brand awareness, it will be costly because more aviation turbine fuels and more human resources will be needed. In addition, there might be some routines which are not profitable at all due to low demands.
Air Asia has formed alliance with Qantas Jetstar since January 6, 2010 (Business Day, 2010). Though this alliance, both airlines gain much advantages as the main advantages would be cost saving. Air Asia is able to save cost in many aspects such as economic of scales. Both airlines are having joint fuel purchasing, aircraft components purchasing in order to get lower price deals (Airline World, 2010). Besides that, they also share the maintenance costs. When there is service disruption in either one of the airlines, the alliance will help the party to carry passengers. By helping each other, Air Asia could minimize the dissatisfaction level of customers during difficult time to perform service as usual.
As mentioned in previous section, the customer cannot change the time of flight tickets which they have bought. This will reduce the flexibility of the customers and end up some of them are dissatisfied. This strategy can save cost for the company. However, in long term period the company might lose loyal customer and potential customer due to inflexibility of the ticket switching.
Overall there are two strategies which meet the main criteria. Air Asia should put focus on differentiation strategy and alliance strategy. These two strategies can help Air Asia to save cost while fulfilling customer needs in maximum level. The strategy that Air Asia should not focus too much on is Diversification strategy, International Strategy. These two strategies require financial resource and there are many risks such as market research failure during the implementation period. Last but not least, Air Asia should eliminate the ticketing strategy as it will cause losses of loyal customers.