A Comprehensive And Complete Strategic Report On Airasia Marketing Essay

A Comprehensive And Complete Strategic Report On Airasia Marketing Essay The report includes a detailed description of the company and highlights the achievements and strategic decisions that the corporate has undertaken since its establishment in 1993. Furthermore the report will carry on a detailed Macro environment analysis to evaluate the external factors which may affect the company currently or in the future. After analyzing the external factors and their impacts on the company, the report moves on to analyzing the companys micro environment. The comprehensive SWOT analysis also applied for understanding the companys current situation. The company occupies a strong position within Asian civil aviation, according to its successful low-cost business strategy model and financial resources. After great consideration and analyzing different strategic options for the company, this report recommends two possible future strategies for AirAsia, which are aligned with its current cost leader strategy. 2.0 Introduction AirAsia was established in 1993 in Malaysia. It was originally founded by a government conglomerate DRB-HICOM Holding Berhad. On the second of December 2001, the heavily- indebted airline was purchased by partners Dato Pahamin Rejab (former chairman of AirAsia), Dato Kamarudin Meranun, and Dato Aziz Bakar, Dato Sri Dr Tony Fernandes  [1]  . AirAsia began its operation as a low-cost carrier with two planes (both ageing Boeing B737 aircraft), serving five destinations (Kota Bahru, Kota Kinabalu, Kuching, Labuan, Langkawi and Penang) and a staff of 250. In 2003 the company opened a second hub at Senai International airport near Singapore and launched its first international low-cost flight to Bangkok. Since then it started a Thai subsidiary and launched Low-cost flights to Singapore and Indonesia. In 2004 flights to Macau were launched and in following year, 2005 flights to China, Philippines, Vietnam and Cambodia been launched by the company. AirAsia now is one of the award winning and largest low-cost airlines in the ASEAN which is expanding rapidly. It started with a simple goal that how to free air travel and make it so affordable that now everyone can fly. AirAsia Group (including its Thai and Indonesian affiliates) now operates a fleet of 90 aircraft and flies to more than 60 destinations from hubs in Malaysia, Thailand and Indonesia. AirAsia operates more than 3,500 flights a week, colouring the blue skies over Asia a bright red with their striking livery. The Group employs close to 7,500 staff and in its short history, has ferried more than 90 million passengers. AirAsia has become recognised as The ASEAN airline. It has achieved this by providing effective route connectivity and launching direct, unique and high-frequency flights linking ASEAN towns and cities such as Kuala Lumpur- Vientiane, Kuala Lumpur-Bandung, Phuket-Ho Chi Minh City and Bali-Bangkok. 2.1 Vision statement 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  [2]  . 2.2 Mission statement To be the best company to work for whereby employees are treated as part of a big family Create a globally recognized ASEAN brand to attain the lowest cost so that everyone can fly maintain the highest quality product, embarking new technology to reduce cost and enhance service levels  [3]  . 2.3 Business Strategy The foundation of the business has been set to deliver a no-frill, low cost, hassle-free and reliable flights and services to its passengers. The company believes in keeping costs consistently low which requires high efficiency and maintaining simplicity in every part of the business. http://www.airasia.com/iwov-resources/my/common/images/AirAsia/aboutus/strategy.gif source:aurasia.com 2.3.1 key strategic implementations Safety First High Aircraft Utilisation: quick turnaround of 25 minutes Low Fare, No Frills Streamlined Operations: making the process as simple as possible, single aircraft fleet Lean Distribution System : ticketless service Point to Point Network 2.4 Highlights of the company According to IATA in 2009 the traffic dropped 3.5% overall in aviation industry which included 5% decline in Europe, North America and the Asia Pacific region. However in 2009 despite of global economic downturn and fear of A(H1N1) influenza pandemic, AirAisa managed to produce an astounding 148% increase in its core operating Profit to RM447 million  [4]  . The company ferried around 22 million passengers. It also succeeded in driving its Ancillary services by introducing new lines of the service. It expects deliveries of new Airbus A320 aircraft and the phasing out of its Boeing B737 aircraft in 2010. In addition despite tight credit lines it was able to secure financing at competitive pricing for all its aircraft deliveries for 2009 and 2010  [5]  . Five years financial highlights (RM million, unless otherwise stated) For the year ended June For the 6 months ended 31 December For the year ended 31 December 2006 2007 Restated 2007 Restated 2008 Restated Revenue 1,071 1,603 1,094 2,855 Operating expenses 997 1,341 875 3,207 Operating profit/(loss) 74 262 219 (352) Associates contributions (0.5) (3.9) Profit/(loss) before tax 86 278 277 (869) Tax 116 220 149 373 Net profit/(loss) 202 498 426 (496) BALANCE SHEET Deposits, cash and bank balances 426 595 425 154 Total assets 2,574 4,779 6,430 9,406 Net debt 627 1,959 3,272 6,453 Shareholders equity 1,148 1,662 2,099 1,606 CASH FLOW STATEMENTS Cash flow from operating activities 282 595 256 (416) Cash flow from investing activities (1,249) (1,943) (1,581) (2,602) Cash flow from financing activities 1,067 1,509 1,141 2,749 Net Cash Flow 100 161 (184) (269) CONSOLIDATED FINANCIAL PERFORMANCE (%) Return on total assets 7.8 10.4 6.6 Return on shareholders equity 17.6 30.0 20.3 Return on capital employed 4.2 7.2 4.1 Operating profit margin 6.9 16.3 20.0 Net profit margin 18.8 31.1 38.9 CONSOLIDATED OPERATING STATISTICS Passengers carried 5,719,411 8,737,939 5,197,567 11,808,058 Capacity 7,378,075 11,140,764 6,621,276 15,660,228 Load factor (%) 78 78 78 75 RPK (million) 6,702 9,863 5,930 14,439 ASK (million) 8,646 12,391 7,919 19,217 Aircraft utilisation (hours per day) 12.0 12.0 11.9 11.8 Average fare (RM) 174 171 195 204 Revenue per ASK (sen) 12.4 12.9 13.8 13.9 Cost per ASK (sen) 11.5 10.8 11.0 11.4 Cost per ASK excluding fuel (sen) 6.6 5.2 5.4 4.2 Revenue per ASK (USc) 3.35 3.65 4.06 4.22 Cost per ASK (USc) 3.12 3.06 3.25 3.49 Cost per ASK excluding fuel (USc) 1.79 1.46 1.60 1.27 Number of stages 48,339 68,195 38,507 89,118 Average stage length (km) 1,163 1,088 1,183 1,207 Average fleet size (Malaysia) 20.5 27.1 31.6 36.6 Size of fleet at year end (Malaysia) 26 34 39 44 Size of fleet at year end (Group) 42 54 65 78 Number of employees at year end 2,224 2,924 3,474 3,799 Percentage sales via internet (%) 60 65 65 70 Source:airasia.com 2.4.2 Ancillary Services The company offers different ancillary services, such as AirAsia cargo, insurance, holiday packages and credit cards. Since 2010 it offers a non flight ticket booking service called AirAsia RedTix which offers ticket booking for concerts, musicals, theatres, sports and other events. It also offers some loyalty programs. Furthermore it is focusing on building its own supply chain for ancillary services to provide better pricing for its passengers. The company mainly use its website as a distribution channel to offer its services. The company achieved 34% growth in its ancillary income in 2008 and it expect around 50% growth in 2010. 2.5 Company description Its subsidiaries are Crunchtime Culinary Services Sdn Bhd; AA International Ltd, which is an investment holding company; AirAsia Go Holiday Sdn Bhd, which is engaged in tour operating business; AirAsia (Mauritius) Limited, which is engaged in providing aircraft leasing facilities to Thai AirAsia Co. Ltd ; Indonesia AirAsia ; VietJet AirAsia ; AirAsia RedTix ; Airspace Communications Sdn Bhd; AirAsia (B) Sdn Bhd; AirAsia Corporate Services Limited; Aras Sejagat Sdn Bhd, which is a special purpose vehicle for financing arrangements required by the Company, and Asia Air Limited, which is engaged in the provision and promotion of AirAsia Berhads in-flight food to the European market  [6]  . 2.6 AirAsia organizational structure The following chart shows the corporate structure and principal operating companies for AirAsia. http://www.airasia.com/iwov-resources/my/common/images/AirAsia/aboutus/chart_organization.gif Source: aiasia.com 2.7AirAsia route Network One of the key strengths for its business is to continuously expand its route network and the frequency of flights, which provides the advantage of more connectivity for the passengers. AirAsia operates from nine regional hubs. AirAsia flies to over 60 cities in 16 countries with 126 domestic and international routes  [7]  . When the company attempts to launch its low cost long haul flights (AirAsiaX) most of the airlines assumed that such attempts will fail due to the more cost and complicity in long haul flights. However the company were quiet successful since it has launched its long haul flights name as AirAsiaX and has earned numerous industry awards, including Asia Pacifics best New Airline in 2008 for its low cost long haul business model. Now there is huge market to expand its long haul flights to different countries. Currently AirAsiaX flies to China, India and Indonesia. The company uses the brand likening agreement which allows it to use the AirAsia brand and a shared services agreement which will benefit the company by sharing resources such as marketing team, distribution channel, cabin crew and pilots. The combined short-haul and long-haul networks feed each other. In the six short years since its inception, Thai AirAsia has become Thailands largest low cost carrier with a market share of 67.81% by passengers and of 67.80% by aircraft movement. It has ferried over 19 million passengers to various destinations. In 2009 the company expanded its rouà ©s in Thailand from 19 to 26 destinations. AirAsia now has two Airbus A320 aircraft based in Phuket, and achieved a load factor of 76% (79% domestic and 74% international)  [8]  . AirAsia currently operates four hubs in Indonesia. As the main hub, Jakarta connects Indonesian passengers to many cities across ASEAN. In 2009, it expanded its routes to Australia, Bangladesh, Sri Lanka and Taiwan. The company key focus in 2010 is India. Apart from Tiruchipillai, the company has added Kolkata, Kochi and Trivandrum to their network. Furthermore the company will focus into six new India routes in 2010  [9]  . 2.8 Joint venture and strategic partnership highlights The company business strategy is cantered on cost leadership, which is focused on price-sensitive customers on long-haul and short-haul flights. The company is mainly focused on joint venture partnership to expand its long-haul flights globally. As AirAsia chief executive Tony Fernandes said: With joint purchasing power it means that we can potentially work with airline manufacturers on the right configuration and design of an aircraft specifically for AirAsia and that the best suits our operational needs for the future  [10]   Airaisa recently (09/04/2010) singed a strategic partnership agreement with VietJet Aviation Joint Stock Company. The company earlier had acquired a 30 percent equity stake in VietJet Air( Vietnam Airlines) which was the first step to lunch of a Vietnam-based, low-cost subsidiary. The trade name is VietJet AirAsia which will be operating both in domestic and international market. The governments of respective companies were fully supportive to the lunch of VietJet AirAsia which will be offering low fares to boost the travel and tourism in Vietnam and the rest of ASEAN region  [11]  . http://www.asianewsnet.net/home/images/space.gif AirAsia recently (06/01/2010) signed an airline alliance agreement with Australias Jetstar to pool recourses and expertise, procure new aircraft and revenue-sharing deals which could lead to cost savings of $200m and $300m annually. The next step for the partners would be to look at joint venture on routes and other commercial activities including joint procurement of hotel inventory for holiday packages. Plans include saving on costs including aircraft purchasing, maintenance and design, since both airlines operate with similar fleets  [12]  . The Virgin Group became an investor in  AirAsia  X to the tune of a 16% stake. The majority stake with 48% is a Malaysian group that includes Fernandes, while  AirAsia  itself has 16%; Japanese aircraft lessor Orix Corporation has 10% and Bahrains Manara Consortium has 10%. AirAsia  X began operations in late 2007 to Australias Gold Coast and now flies to three destinations in that country and two points in China, as well as the UK. It is seeking more A340-300s for longer-haul routes and has 23 A330-300s on order. 3.0External analysis 3.1 PESTEL analysis POLITICAL ECONOMIC SOCIAL Political uncertainly in Malaysia and Thailand Increased tension between Malaysia and Indonesia Severe Security Measures and Restrictions Terrorism attacks mostly in Malaysia and Thailand Increase in route charge by the Government Government support for national carriers Establishment of Climate Protection Charge, so the aviation industry has to compensate further taxes for carbon emission. . Currency fluctuation GPD growth rate The low-cost airline industry is in the growth rate of the life cycle High price ceiling of petroleum products and fuels Recession Changing economy leads to change in lifestyle which includes frequent flying for vacations Operating in ASEAN with different cultures and languages Operations increased in grey market Increasing Population Rising in middle class TECHNOLOGICAL ENVIRONMENTAL LEGAL Fuel efficient engines and air frames Teleconferencing for business Technology expansion in terms of internet sales Online check in Use of technology for ancillary services Wireless technology expansion Use of new Airbus A330-300 Use of information and communication Technology(ICT) Yield management system Computer reservation system Enterprise resource planning system Strict checks on Green house and global warming issues due to pressure from eco-friendly friends. Emission trading scheme Energy consumption and noise pollution controls Land for growing airports No food and beverage service inside the flights so reduce leftover waste Restrictions on mergers Preferential airport rights for some carriers ASEN Regulations Health and safety Other landing charges Compensation Political Political uncertainly in Indonesia and Thailand is not in Airasias favour as it operates mainly in both countries. Since 2006, Thailand has been facing many political issues. In April 2009, Red shirt protestors, who were angry that Thaksins government was forced out of office, caused the cancellation of ASEAN summit and their latest antigovernment protestors went on March 2010 which caused the closure of some airports in Thailand. Moreover as a result of granted exploration rights in oil rich waters off the coast of Borneo have increased tension between Malaysia and Indonesia  [13]  . As mentioned earlier, AirAisa offers long haul flights through strategic alliance with different airlines and willing to expand it further. The main political issue which the company may face in the future is the political relationships with the respective countries which may affect the operation of the company. Economic Fluctuating fuel prices: It has increased turbulence in aviation industry. According to the International Energy Agency the world aviation fuel demand will grow through 2010 led by Asia  [14]  . This current technique of global supply chain incurs large-scale costs to AirAsia who is unable to secure low-cost fuel. This is not good for this no-frills airline ait wants to stay in the market as a low-cost airline and to deliver customers what they want without added costs. Malaysia GDP Growth Rate: The Gross Domestic Product in Malaysia is in companys favour as GPD contracted at an annual rate of 2.60 percent in the last quarter. Malaysia Gross Domestic Product is worth 192 billion dollars or 0.31% of the world economy, according to the World Bank. Malaysia is a rapidly developing economy in Asia. Malaysia, a middle-income country, has transformed itself since the 1970s from a producer of raw materials into an emerging multi-sector economy. The Government of Malaysia is continuing efforts to boost domestic demand to wean the economy off of its dependence on exports  [15]  . Country Interest Rate Growth Rate Inflation Rate Jobless Rate Current Account Exchange Rate Malaysia 2.75% -2.60% 1.70% 3.70% 30449 3.1820 Economic Forecast 2009 2010 Malaysia GDP Growth Rate Sources: ASEAN Finance and Macro-economic Surveillance Unit Database; national statistical offices. Social AirAsia operates in a region with diverse culture, language, origin and religion. As a result the company operates in a market where consumer preferences and demographics are different and uncontrollable. Consumer behaviours are becoming increasingly difficult to predict as contemporary consumers tend to shift loyalties from one brand to another due to price differences or even lack of basic consumer consistency. The competition in low-cost airlines within Asia region is increasing, giving consumers vast choices to choose an airline. Thus in order to fully utilise a market, bring value, increase its consumer generated revenue and relate to the diverse consumer needs, AirAsia must completely understand the market. Technological AirAsia uses the latest information and technology system which allows it to reduce its operating costs. The company has adopted variety of information technologies such as Yield management system, Computer reservation system (CRS), Enterprise Resource Planning System (ERP). Furthermore the company operates with youngest fleet, Airbus 300-330 which again allows the company to operate more efficiently. Environmental In the Asia Pacific region, rapid economic and population growth creates serious social consequences from environmental problems of  global warming and air pollution. The air travel is constantly increasing in that region as consumers are more driven with better technology; this has however increased issues related to global warming and green house effects. AirAsia is always expanding which spells disaster for the planet as more flights mean busier airports, bad sound quality for people living and working near the airports, more noise and air pollution. The company however says its airplanes are more efficient, quieter and thus have less environmental impact. CO2  Emissions from Malaysia Total Fossil Fuel CO2 Emissions from Malaysia graph Source: http://cdiac.ornl.gov/trends/emis/mys.html Legal As mentioned earlier, AirAisa offers long haul flights through strategic alliance with different airlines and willing to expand it further through more partnerships all over the world. The main legal concern for the company is to sort out the legal issues and obtain clearance from the respective countries. As AirAsia Group CEO Fernandes has said that the budget airline would fly to North America once it sorted out the legal issues and obtained clearance from the respective countries  [16]  . Also the company has signed sponsorship deals with different companies, such as its sponsorship deals with National Football Leagues (NFL) Oakland Raiders, which brings its own legal issues. Furthermore the company should pay more attention to health and safety regulations as well. Overall it can be said that the external environment (PESTEL) for AirAsia is relatively stable, however the companys biggest problem involves the legal obligations. It should try to keep the Legal environment as steady as possible. Furthermore the perception of consumer behaviour is another issue for the company and it should develop strategic tools to improve total consumer investment and sales performances. 4.0 The industry environment AirAsia is engaged in the civil aviation industry where it provides low fare, long haul, short haul, point-to-point scheduled passenger airline services. In 2009 AirAisa managed to produce an astounding 148% increase in its core operating Profit to RM447 million  [17]  . The company ferried around 22 million passengers. It also succeeded in driving its Ancillary services by introducing new lines of the service. 4.1 Porter five forces Power of the supplier Supplier power is moderately high. Airbus is AirAsias main aircraft supplier, which means they have high supplier power. Also the switching cost from one supplier to another one is high as it involves lots of hidden costs, e.g. retraining pilots and mechanics. Airports also plays a crucial role as suppliers, the charges for main airports are very high as they are dominant player in supply chain, but the secondary airports have lesser bargaining power. Power of the buyer Buyer power is moderately high due to no switching cost from one airline to other one and it can be easily achieved. Also the easy access to the internet will allow customers to gain information on the prices which are charged by other airlines. Rivalry Rivalry power is in the companys favour. The low-cost operation of the company allows it to offer the cheapest price in the market. However there is a threat that, the profitability of LLC will attract full service airline to lunch its LLC version which will increase the degree of rivalry in the industry. Power of substitute Fortunately, the geographic structure of Asia which is so vast and the large distance between countries has made the air travel the most efficient and convenient way to travel, which makes the power of substitution such as trains or ferries low to the company. Power of new entrant The threat of new entrants is moderately in AirAsias favour at present. The high capital requirements to enter the market and high exit barrier prevent many entrants to the market. In addition, AirAsias 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. Based on the industrial scanning, the demand for low-cost airlines in Asia is expanding. The profitability of LLC will attract full service airline to lunch its LLC version which will increase the degree of rivalry in the industry. However AirAsia is the market leader in Malaysia, Thailand and Indonesia and in order to overcome the future rivalry it should focus to add value to its services in order to keep its position in the market. 4.2 value chain The value chain logic is that every company occupies a position in the chain which is then passed downstream to the customer. Inbound Logistics is the start of the value chain which includes airport agreements, low cost suppliers and so on. AirAsia serves through secondary airports (significant savings) in various locations where it is able to get good contracts with the airport authorities. It even attempts to negotiate discounted fees by delivering an annual increase in passenger traffic where practical. So it has good relations with its contractors, Airbus being its main supplier of aircrafts provides on-time delivery, gives discounts so it is able to maintain common fleet which reduces costs and saves time. It also does outsourcing in the form of its online web check-in for its passengers. Support activities Firm infrastructure Finance Accounting Quality assurance HR management Providing recruitment and staff training Providing pilot training Providing Yield analyst training Providing In-flight training Technology Adopting information technology such as CRS, FSS, YMS Baggage tracking system In-flight system Procurement Technology acquisition Primary activities Inbound logistics Aircraft purchasing or leasing Aircraft fuel and parts purchasing Landing slot acquisition Flight and crew scheduling Operations Transporting passengers Flight scheduling Courier operation On-board services Outbound logistics Providing transportation Baggage claiming Marketing and sales Advertising and promotion: the most important activity to create more brand awareness. Direct sales Selected travel agent Services Call centre system: to tackle problems with customer enquiries Lost and found services AirAsias value network is a combination of players which comprises of its external network of its customers, stakeholders, complementors, open innovation networks, intermediaries and suppliers, and its internal network focusing on key activities, processes and relationships such as order fulfilment, innovation, customer support and so on. In order to add value it is necessary to position all parties in the value network business model so they can then deliver value to customer supply. Based on the information collected, value can be analyzed, and within this network a companys value share position can be determined. 5.0 Internal analysis 5.1 Current strategic implementations AirAsia has currently adopted information technologies strategically to integrate the operations and coordinate all the business and management functions. The followings are few system implementations that AirAsia has done in its marketing and sales activities as well as operation activity in the value chain. Yield management system Computer reservation system(CRS) Enterprise Resource Planning System(ERP) IT implementation and strategic alignment 5.2 Positioning The company has p