CASE STUDY OF THE STRATEGY AND ENVIRONMENT OF AIR ASIA

AirAsia is one of the leading airlines corporation of Malaysia that performed exceedingly well in terms of its past investments and the profits that it made out of it after it’s relaunch. It was acquitted by a private entrepreneur Tony Fernandes when it was highly under debt. The sudden changes in the profit graph came to the surface soon when it announced its first profit right in seven months of its re-launch. The innovations in strategy and investments brought immense amount of profit to the company in the following years. It invested amounts on new and effective services and cut shorted various not essentially required expenditure to reduce the overall cost. With the implementation of its successful LCC model, the whole business model of AirAsia was changed and it became first Airline Corporation to have no-cost, no-frill concept to lower the prices by 40-60% than its rivals. The results were quite beneficial as it announced its first profit as US$6 million in December, 2002.

The corporation kept on expanding its business with the opening of three other hubs within Malaysia to have more share of market size on domestic air flights in Malaysia. It also invested in to have regional flights to its neighboring countries like Thailand and Indonesia with its collaboration with Thailand Shin Corporation and Awair. This made AirAsia to have cheaper airlines to the neighboring countries. AirAsia soon emerged as the largest domestic airlines in Malaysia with the expectancies of over 18 million passengers in the year 2007. With its partnerships with various LCCs, the corporation performed well enough for its long-haul regional services. Its joint ventures with the LCCs like Australia’s virgin blue, the corporation got a big share in the expanding market of Australia. Its market kept on expanding over the years with the commencement of its flights to even the far cities like London and also for close countries like India and China with the net income reaching over US$44 millions in the year 2008.

B] STRATEGIC POSTURE

The mission of the corporation is to provide high-quality but low cost flying services to all type of passengers. The corporation being a part of airline industry, it missions to become the leader of the market by implementing its smart strategies and sharp business skills. As quoted by its owner Fernandes, he overtook the corporation during its declining stage as he advocated the correctness of time to enter the market because of charter aircraft price and abundance of skilled aircraft staff. The company has been consistent in following its goals and objectives throughout in its performance in the past decade. The corporate objectives were innovative and highly efficient with its symbolic acquisition of its own by Tony Fernandes, joint venture with Thailand Shin Corporation, Awair, Singapore’s Tiger Airways, etc to provide a broad destination options for its customers at the right times when it was needed. The business model was reconstructed with no-frills, low cost carriers (“LCC”) which brought immense amount of profits to them. The business objectives were to get not only the quality customers but the quantity customers with its seats available in different schemes and at different prices for all type of class of customers. They were constantly consistent with each other to provide exactly what the customers wants and what actually can be managed. The functionality objectives were always to cut down the economic fair of air travel by either performing to get reduced charge from the passengers or providing effective routes for them reducing their net expenditure on travel. It also added various value-added services like online booking, SMS booking, and bookings through call centers, etc. AirAsia soon became the integrated service provider from being a classic LCC product in its functionality to provide maximum attraction to its customers. The objectives were also consistent with the environment of the corporation. Even during the hikes in the prices of oil in mid-2008, the corporation didn’t let the fairs go that high which was quite helpful for the corporation in beating off its competitors.

The AirAsia opted for various cost-effective, customer-oriented and highly innovative strategies to shape its business model to reach its ultimate missions and objectives. With its innovative low-fare, no-frills concept it highly reduced the cost of air ticket such as by having just a single standard cabin, paid meals instead of pre-paid free meals, etc. The corporation found efficient ways of reducing the expenditure on travel by the customers while expanding its domestic and international business. Like for example, the short-haul flights took less than four hours for travel which provided it opportunity of having the return of the flights on the same day conserving many of the expenses of the corporation. The company also launched its long-hauled air services at the time when many of the LCCs were reluctant for that. All the strategies or mix of strategies were consistently aiming at gradually achieving the goals and the objectives of the corporation and dynamic with the changing internal and external environment.

The corporation adopted bold and dynamic policies to achieve its objectives. The corporation first concentrated only on the domestic market and modified its business model to LCC. Then, gradually and steadily corporation expanded itself to first neighboring countries and then internationally across the continents. The missions, objectives, policies and the strategies clearly reflect the company’s goals to achieve success not only at domestic level but also the international level (KO, 2009).

EXTERNAL ENVIRONMENT:

A] NATURAL PHYSICAL ENVIRONMENT: SUSTAINABLE ISSUES

Opportunities: The physical environment around the corporation’s site of business is climatically categorized as equatorial, being hot and humid throughout the year. The climate is favorably well enough to support the flight take-off, landing and flying. The physical location of Malaysia also favors the growth of the organization as it is well connected to the seas and oceans and so for its long-haul regional services, the corporation does not require to manage the permissions to cross the airbase of other countries. In this way the surrounding physical environment of Malaysia provides fair opportunities for AirAsia.

Threats: Coming to the threats involved with the natural environment, the well connection of the country to other continents through seas and oceans provides enough opportunities for the journey through ships and Cruzes too which somewhere indirectly can effects the market of AirAsia. The Malaysia, Thailand and Indonesia is also a prone area for tsunamis and earthquakes that could affect any industry. The hot and humid climate also affects the working capabilities of the crew.

These types of physical environments are also present in few other parts of the world and the same opportunities and threats exist there too.

B] SOCIETAL ENVIRONMENT:

Economy: The economy of Malaysia is a newly industrialized and state-oriented economy that plays a significant role in the success of AirAsia. The speedily growing economy of the country allows more and more customers to be able afford the airlines travel cost that makes a lot in the growth of a privately owned airlines especially it was relaunched soon after the nation came out of the financial crisis of Asia in 1997.

Technological: The technological advancements in the fields of Information technology and Communication have led the value-added services of the corporation to work effectively.

Political-legal: The political condition of Malaysia had also been in favor of the corporation as its acquisition was highly welcomed by the Malaysian government and there had been no conflict between the corporation and the governance of the nation till now.

Socio-cultural: The hospitality of the people with their own diversity in food, cloth, etc and scenic beauty has always made Malaysia as a tourist spot for the tourists all over the world that has again proved a benefiting factor for the corporation.

C] TASK ENVIRONMENT

The forces like natural environment, external investments, location of hubs, rivalry with competitors, financial crisis, government policies, etc are the major forces that drive the industrial competitions. These forces vary from country to country as the economy; political, cultural conditions are not the same for every country. The following forces are listed with their ratings:

Threats for new entrants- Medium

Bargaining power of buyers- Low

Threats of substitute products or services- High

Bargaining power of supplier- Low

Rivalry among the competing firms- High

Relative power of unions, governments and special interest groups, etc.- High

The key factors in the immediate environment affect a lot to the corporation. The government policies decide the taxes, establishment of hubs, permissions of number flights, etc. The loyalty of the labor unions ensures the smooth functioning of any corporation. The suppliers, providers, creditors always affect the quality of the services provided to the customers.

INTERNAL ENVIRONMENT

A] CORPORATE STRUCTURE

Following is the way as the corporate structure of Air Asia at present (Organizational Structure, 2009):

The structure is as we can see in a horizontal manner which means hierarchy is horizontal in the company. This is obviously something good for the company as interaction with lower level employees becomes easier for the above level of the employee or vice versa.

Structure is comparable with most of airline firms as they also have the same horizontal hierarchy.

B] CORPORATE CULTURE

Corporate culture of the company is mainly base upon maximizing the value of shareholders. It also mainly believes in giving safety to the customers.

It believes in giving maximum satisfaction to the customers with leaders in the cost structure

It believes in transparency and development of human capital.

Company is very much compatible with the employees and their diversities as it is providing employee satisfaction to all of its employees

The company is similar in the cultural values like similar organizations as most of the organizations in the aviation sector have the similar cultural values (Strategy, 2006).

C] CORPORATE RESOURCES-

1. MARKETING:

The current marketing objectives of the corporation are to get maximum number of customers of all types by making such schemes in which everyone can be accommodated.

Its tagline “Now Everyone can fly” says the basic fundamental concept behind its marketing objectives.

The corporation effectively found the ways of getting the most effective routes to suit both its cost and customer’s satisfaction.

The corporation has kept on adding and modifying its features and value added services to provide maximum offerings to increase its sales. The company has also strongly stuck itself to LCC principles.

The corporation has also recently announced the commencements of its flights to even far-off places like London.

The corporation has not only offered cheap tickets but also the services like travel insurance, etc. The free tickets on the basis of its point to the customer are another such offering.

All these have also been dynamic and corresponding with its performance and availability of budgets.

The company has very well performed on the basis of its current market position and the position from which it had started during its relaunch. The company has enough promotion and publicity in media through its publicity strategies. The fares of ticket have always been kept as low as possible despite of all sorts of problems coming up like price hikes of oil, etc. The company is even the sponsor of the famous Manchester United Football Club and AT&T Williams Formula one team to have its world-wide promotion. The market size of the company is expanding with the launch of its several multinational collaboration and establishment of the joint ventures in Indonesia, Thailand, Australia, etc. Besides, its primary product of airline tickets its several other products include internet check-in services, Xpress boarding services, mileage programs, Citibank-Air Asia Credit Card, etc. The company is able to earn for the same product easily from the developed region in comparison to that in developing region. This shows a trend that the basically the marketing strategy of a company should cover every section of the society in order to have maximum profit. This trend had been a fair impact on the success rate of a company and surely will be in the future too. The marketing of its products gives the company massive advantage over its competitors.

The marketing strategies of the corporation have beaten all its major competitors both in terms of profits and customer’s satisfaction. The marketing managers have accepted these tools and techniques to evaluate the performance of a product. Marketing is highly dependent upon the political and socio-economic conditions prevailing in a country and hence same marketing strategy cannot be applied for adjustments in all the countries. The marketing takes an overall account in every dimension and hence the environmental sustainability has to be a guiding factor in marketing policies.

2. FINANCE:

Corporation’s current financial objectives, strategies, policies and programs have been with high hopes of return.

The corporation had to invest much on the purchase of flights, managing the crew of a debt-ridden firm and maximize its scale in a very less time.

The finance has been clearly mentioned but under the limitations of its past performance.

They have been exactly consistent with the objectives, policies and strategies of the corporation. The corporation’s finance in the activities of setting up of hubs within and outside Malaysia with the collaboration of other corporations helped them to gain several direct or indirect benefits.

Its financial services like holiday products and all, charge for meal as customer desires, online and SMS bookings, medical care, etc did enough cash flow but in return it got enormous level of attachment with the customer who would always like to stick to AirAsia for its services.

The smart finance policies of finance showed a trend of financing the long-term goals and objectives without compromising with the immediate ones can be an effective way to earn maximum economic profits. The past effects are already shown by the AirAsia and in future it is expected no less. This analysis strongly supports corporation’s past and pending strategic decisions. The financial success in terms of returns provides company with a competitive advantage.

The financial performance of the corporation can be very well compared to others with the fact that out of many corporations based on LCC, it became number one in 2008. The profits were always high and when the MAS tried to have a price war it had to suffer huge losses. The finance is quite adjustable to the condition operating in various countries. The coping up of finance with global finance issue was also very well proved by the corporation during the period of global recession.

Also, the finance managers play a very important role in strategic management as they are the ones who evaluate the effectiveness and acceptability of the strategies made and implemented.

3. OPERATIONS AND LOGISTICS

The current service objectives, strategies, policies and programs of the corporation are not much different from those meant for the organization as a whole. They are meant for sale but with ensuring of its reputation and sustainability in the market. The services provided by the AirAsia are accurately meant for achieving its mission and objectives. They are clearly stated and structured with the requirement in the market. Also, they have always been revolutionary and innovative in their respective approaches.

The cost effective and high quality services have the capabilities of not only bringing the ultimate customer satisfaction but also the favorably high returns of profits. Although the company has now started to focus internationally but still it has not been deviated from its initial aim of becoming the market leader of the domestic market. The purchasing is being handled on the very basis of its requirement. The other points to be highlighted are vulnerable to unexpected natural disasters, local or international strikes, hikes in prices of the materials and the other issues.

4. HUMAN RESOURCE MANAGEMENT

The corporation has also effectively managed its human resource to benefit all. Even during its relaunch it didn’t cut short the employees. It even saw the opportunities in hiring the skilled professionals, workers and other employees. Their objectives and strategies were again consistent with the corporation’s missions and objectives achieving the satisfaction for all even its own employees. There was not even a single considerable instance on clashes between employees and the top managing employers. The policies straight away indicate that they are simple, well stated, less dependent on the performance of the corporation and satisfactory for all of its employees. There have been less grievances, strikes and lay-offs which have been a great cause of success that has been achieved by the corporation till now. The commitment and loyalty of the employees as outcomes of proper HRM can be proved by the instance when Fernandes appreciated the staff’s positive work ethic to overcome the financial issue of mid-2008.

5. INFORMATION TECHNOLOGY

The role of Information Technology was another important factor involved with the successful AirAsia. The current objectives and strategies of the corporation regarding IT is to advertise its features and services, add the services and products to the catalog and solve various issues regarding the customer care with direct interaction with them. They are clearly defined with no dependence on budget or performance. They have been implemented for the better accomplishment of corporation’s goals and objectives.

Many of the value added services are handled by IT by providing the travelers with the interface for online booking, internet check-in service, cancellations, etc. The “Real 5 star” rating was another example of this kind. The IT played a very important role in assisting the managers in taking the decisions and decides the immediate strategy. The database of the customer could be easily maintained, the complaints of the customer is speedily managed with the help of Information Technology. This analysis emerges a trend that in this era of boom in IT sector, the appropriate use of IT is a must for any kind of business. This had a positive impact on the business model of AirAsia and surely with the expansion of IT sector the positive impact obviously would be there.

STRATEGIC FACTORS

Four Important Internal Factors:

The marketing innovations and its implementation.

The smart finance policies with the fixed priorities which should also be at the correct time.

The proper use of available manpower, avoiding confrontation among them for maximizing the proper functioning capability of the corporation.

The efficient use of the resources like Information Technology, etc.

Four Important external Factors:

The government policies and the relationships with the government.

The natural environment and the calamities that can unexpectedly occur.

The economic, social and cultural factors of a country.

Rivalry with other corporations.

The current mission and objectives can be justified in the light of available resources, problems and the environment and they are achieved and will be achieved at an appreciating rate in the future looking at the present prospectus.

STRATEGIC ALTERNATIVES:

The corporation can further go ahead with more effective use of IT.

The dual seat system can be implemented in domestic level too.

The corporation has enough expanded and it can now open its chain to other South-east Asian countries, where such strategies would be highly invited.

BUSINESS LEVEL STRATEGY ADOPTED BY AIRASIA

The business model of AirAsia is well established and fairly ideal for other industries as well. With the perfectly set goals, mission and listed strategy ensures the well functioning of the corporation. Foundation of the corporation is based upon low cost, efficiency, stimulation of new markets and strong cash flow. Strategies highlight the concepts of simplicity, quality services at low cost, etc. And the vision is to continue to be lowest cost in the market.

The corporation started its business with just three aircraft in 2002 which grew to the number 72 in 2008. The corporation has enough popularity in print and electronic media. With its low cost and high quality services and the customer’s satisfaction with the products of the corporation, the corporation has emerged out as a market leader in the industry.

According to the porter’s five forces model, absolute cost advantage, government policies, fulfillment of capital requirements, its proprietary products, value added services, and the importance given to the supplier clearly indicates that the strategies opted by the corporation are suitable for it. The buyer’s inclination to the substitute, switching costs, and corporate stakes are the obvious risks for the corporation. (Porter’s Five Forces: A MODEL FOR INDUSTRY ANALYSIS)