Strategic Performance Analysis Of AirAsia
Company background
AirAsia started to operate in 1996 after 3-year preparation. It becomes the largest budget airline in Asia which headquartered in Kuala Lumpur, Malaysia. With the company slogan of “Now Everyone Can Fly”, it operates local and international flights to over 165 destinations (25 countries), with the world’s most affordable unit cost of US$0. 023 per available seat km. The company uses the “nickel and dime” business model. The basic fare is charged at lower price while offering of add-ons services like in-flight meals and reserved seat selection etc.
Industry analysis
For airline industry characteristics, it follows a strict regulatory framework on economic and technical aspects. The airline companies must follow the Air Services Agreements which are the inter-governmental agreements on the traffic rights between two nations. Moreover, the airlines will form alliance like the Star Alliance since it helps building collaborative network through codeshare agreements, reducing the cost on investment and maintenance, and creating more traveler benefits (E. g. round-the-world tickets). Apart from that, they may collaborate with non-airlines parties. For example, AirAsia promotes the partnership with Electronic Travel Authority (ETA) and Malaysia Healthcare Tourism Council (MHTC).
Strategies used
AirAsia started its operation in 1996 which is the gloomiest year of the world aviation industry since 1985. The serious accident casualty, capacity overload and bankruptcy of well-known aircraft manufacturer did not stop the further expansion of AirAsia under the fierce competition with strong rivals (E. g. Malaysia Airline), it entered new segments before its rivals and targeted on multi-ethnic population of Malaysian market (E. g. Chinese, Indian and Thai) who never travelled or could not afford the traditional airlines’ fare. In this case, AirAsia made a choice of battleground by utilizing its relative superiority of selling cheaper tickets over other traditional airlines and enjoyed the first-mover advantage. After it formed the blue ocean strategy, AirAsia narrowed the target groups into students, first-time flyers, middle-class flyers, back-to-home labors for holidays and price-sensitive customers. It created value for customers by advanced online booking system, point-to-point travel system and niche destinations like Bandung. To maintain the low fare ticket, unmanned bookingsystem and no luxury airport lounges were introduced. Besides, AirAsia expanded businesses to car rental, hotel (i. e. Tune Hotel) and financial services (i. e. Tune Money Sdn Bhd). Although it currently reported the first quarter loss of RM$40 million since going public, it still decided to increase 30 flight routes and hold options to buy 50 aircrafts with a heavily discounted price later. The AirAsia CEO, Benyamin also mentioned to focus more on low-cost and long-haul model based on its sufficient network. It seems irrational in others’ eyes.
Strategic performance evaluation
Overall, AirAsia was successful on managing the rivalry, value creation and innovation. AirAsia spent 3 years to prepare and understand its strengths, weaknesses, opportunities and threats. It utilized its strengths of single-type fleet for cost minimization and unique technological ideas. Also, it overcame the weaknesses of insufficient personnel by unmanned booking system respectively. For the opportunities, it grabbed the first-mover advantage on surge in niche travelling destinations. Moreover, it mitigated the threats of fluctuated fuel cost and fierce rivalry by setting strategies for short-term fuel shocks and blue ocean strategy. To achieve successful blue ocean strategy, AirAsia creates a value innovation by elimination, reduction, raise and creation. It eliminates the over-the-counter booking system and free flight meals, reduces the luxury airport lounges and number of flight attendances, raises the flight frequency and niche destinations, and creates the online booking system and point-to-point system. It reduces the costs but also provides customers value by not confronting rivals directly. It turns the threats from the existing competitors into an opportunity for gaining the untapped profit and brand loyalty.
On the other hand, AirAsia analyzed its own market positioning after the first quarter of loss. Among the 6 operations in Malaysia, Thailand, India, Indonesia, Philippines and Japan, the first two countries belonged to cash cow market positioning in BCG Matrix analysis, which funded the remaining countries’ operation. The relative market share was high when it became the market leader of budget airline industry, but the market growth rate was relatively slow with less than 20% increase in the year of 2008. It believed that its market leader position could support its coming expansion under the accounting loss. Most importantly, it investigated that the loss was caused by some external factors including weakening exchange rate of the Malaysian Ringgit against the US Dollar, exceptional charge for fuel contracts signed at a higher-than-current price, and non-recovery of hedging deposits held by bankrupted Lehman Brothers. This is the enlightenment from this company loss – accounting profitability is a kind of measurement but not always evaluate a firm performance truly and fairly. By thorough analysis and critical thinking, AirAsia’s success can be reflected by the huge economic value creation in Asian aviation industry.
