The Strategic Management Of AirAsia: Value Chain Analysis

Strategic Management in a Global Context

Executive Summary

The report "The Strategic Management Of AirAsia: Value Chain Analysis" is study on the strategic management of “AirAsia and Tune Group”. AirAsia is well known for low-cost airline and one of the market leaders in the airline industry. To maintain the brand which is outstanding as low-cost carrier service and to be customers’ preference, AirAsia must do some sort of strategies. This paper will be analysing on three questions.

Firstly, it will discuss on the barriers which need to face to enter a new entrant in the airline industry by using Porter’s five forces model. Secondly, it will explain on valuechain analysis by using VRIO framework to determine AirAsia and the Tune Group’s organisational capabilities. Lastly, it will discuss on how AirAsia and the Tune Group has applied its existing capabilities to grow and diversify using Ansoff’s matrix.

Introduction

This report mainly focuses on the strategic management of Air Asia and tune group. It will analyse on the attractiveness of South East Asian airline industry by using porter’s five forces model, value chain analysis and will discuss on how Air Asia and the Tune group apply Ansoff’s Product/Market matrix on existing capabilities to grow and expand the business.

The barrier to entry new entrant of airline industry

A group of organisations that provide services and create products to reach customers expectation is known as an industry. Porter’s five forces help to identifythe attractiveness of the industry, evaluating competitive strength and position of the business organization. Air Asia has high numbers of competitors in South East Asia such as Jet Star, Scoot, Indigo,Skymark airline, JAL express and Nok Air etc. The competition is strong as there are a lot of competitors in the market. The competitors will find different routes which Air Asia don’t fly to compete with AirAsia.

Airline industry has high fixed cost and input constrain that is one of the adversities tolaunch into airline industry. The cost includes the finance cost, hiring purchase and staff costs. Air Asia made price reduction to compete with its competitors as the rivalry is strong.Existing cost is high, the cost may include maintenance costs, staff retrenchment fees andloan/debt payment. Sometimes airline need to give refund to the passengers due to flightcancellation or flight delay. Although it has no profit, airline continues to run the operationto cope with fixed cost. Therefore, airline companies very hard to leave from airline industry.

Threat of new entrants

The threat of new entrants depends on the barriers to entry. If the customers have strongfeeling on the existing airline or they are loyal on the brand, it’s difficult for new company to set up in the airline industry.Air line industry is highly cost industry and start-up cost is expensive too. The cost mayinclude setting up headquarters, hiring pilots, flight attendants, service engineers and purchasing aircraft. This will be the first part to see for new airline to enter aviation industry. Existing companies already have their own suppliers so it’s hard to get the suppliers and distribution for new company since there are few suppliers for airline.Government regulations and legalization are very strict for airline. It’s very difficult to apply for license and getting permit to operate air line company. For new entrants are often difficult to get right flying slot time due to lack of airport infrastructure as Government strongly support for national airline.

Threat of substitutes

The switching is very easy as there are many low-cost flights that can meet consumers need in the market. Other airlines are also providing same services and they can send the customers to their destinations on the same timing. For e.g.: Jet Star, Scoot & many more best budgets airlines can be substituted for Air Asia.

Bargaining power of Suppliers

The bargaining power of suppliers in the air line industry is considered as strong. The supplier for the airline is limited and expensive and cost for fuel is high too. As there are only two suppliers such as Boeing and Airbus for aircrafts and thus switching cost is too high. Since the costs for supplier are expensive, it provides higher barrier to new entrants to enter airline industry.

Bargaining power of Buyers

There are many similarities airline which has same cost and services in the market. The onlydifferentiation is the packages and accommodations that provided by airline. Selectednumber of customers who are interested the package will go for specific airline while mostof the customers look for cheap prices only. Switching cost is very low. Customers can change the flight easily as there are many airlines which can buy with same price.

Value Chain Analysis on Air Asia and the Tune Group

Strategic capabilities are the capabilities of an organisation that contribute to its long-termsurvival or competitive advantage (Johnson et al.,2017). There are two components of strategic capabilities such as

Resources and Competences

Air Asia use large fleet of Boeing 737/747 and air bus A320 to operate with low cost. Air Asia offer single class which allows to put more seats in the plane. The new aircraft type A320 isfuel adequate type that can keep as low-cost carrier and can help to scope to meet with customers need. Air Asia is declared as world’s first airline point exchange platform (Asia, 2018) for their loyal members. Air Asia has reward points program for Citi credit holders. Air Asia is the first airline which provide different routes that no one ever done before.

Technology Resources

In Southeast Asia, AirAsia was the first airline to promote e-ticketing. This implementation can help to save the cost for physical tickets issue problems. AirAsia made customers to be convenient for payment such as AXS machines. AirAsia has a benefit on advance technology capabilities and that is one of the reasons which increase its sales and lower cost in the aviation industry.

Human Resources

AirAsia pilots, crews and other staffs are always highly motivated by CEO tony. There is strong relationship between top management team and employees. Based on the performances in the whole year, AirAsia staffs can enjoy free flight award, offer of shares,performance bonus and so on. All these efforts not only help to productivity but alsostrengthen employer-employee relationship. Hence, AirAsia has strength to sparkand to do yield enhancement to the staffs. VRIO frameworkOvidijus Jurevicius defined as “It’s the tool used to analyse firm’s internal resources and capabilities to find out if they can be a source of sustained competitive advantage” ( Jurevicius, 2013).

Value

Air Asia provides low-cost services to the customers and has been awarded for World’s best low-cost airline. Air Asia put safety, quality and performance as its high priority. It’s to attain lowest cost to ensure everyone can fly in the world.

Rarity

The concept of Air Asia is not really a rare as other airline services providing low cost with same services in the market.Inimitability – Air Asia has created clear brand image. Therefore, it’s hard to intimate by other competitors.

Organisational support

Air Asia has established a stable organisation and ready for changes, especially with strong support from CEO and deputy CEO. VRIO FrameworkThe following table is VRIO with relative firm analysis.

Inbound Logistics

It involves all areas such as receiving, input storage when produce outputs. AirAsia use large fleet of Boeing 737/747 and air bus A320/A330 which has cost effectiveness. AirAsia has 19952 manpower and management team provided proper training to the staffs so thattheir staffs able to provide effectives services within its pack organisation.OperationsThe process of transforming inputs into finished products and services. AirAsia always demands on standard procedures and safety are AirAsia’s priority.

In 2004, AirAsia achieved good operating benchmarks because of its on-time flight schedule and baggage handling.(iii)Outbound LogisticsIt includes to deliver products/services to distribution channel or destination. AirAsiaoperated Airbus A320/330 aircraft that run over 321 routes as of June 2018. Aircraft interior designs are outfitted red carpet and leather seats as their signature feature to comfortable the guest on travelling time.(iv)Marketing SalesIt involves all activities that inform customers about products/services. AirAsia has promoted their brand without making high budget on marketing expenses.

For e.g. in order to promote the brand CEO Tony Fernandes wears a red AirAsia baseball cap in his interviews. AirAsia sponsored for RTM's FIFA World Cup as gold sponsor. This deal involved global sponsorship and advertising.(v)ServicesAirAsia provides special services for guests with reduced mobility (wheelchair/mobilitydevice assistance). AirAsia is one of the few airlines with shortest turnaround time. Hence,AirAsia has more flight time compared to other airlines. Besides, AirAsia emphasis on themaintenance to serve the customers with excellent bagging-handle service. Internal analysisStrength and Weakness Analysis of AirAsia is to determine the internal analysis

Core Competences of Air Asia

The analysis of core competences of AirAsia should be built on resources and capabilities (Gürhan , 2007). Based on the four criteria (valuable, rare, difficult to imitate and non-substitutable), AirAsia must determine whether it has any core competencies (sustainable competitive advantages). The core competencies of AirAsia are stated below.(i) Management team strongly support to employees so that they have high productivity and creativity. Competitors hard to find to follow this.(ii) Lower Maintenance cost as AirAsia operate single aircraft type compare to other low-cost airlines(iii) Strong brand image and marketing approach which are difficult to imitate by others4. [bookmark: _Toc525470656]Q3.

Growth and Diversify by applying Ansoff’s Product/Market MatrixAnsoff’s matrix help to determine and analysis to grow AirAsia business via market penetration, product development and market development with the aid of this matrix AirAsia able to access their business on the business life cycle.

Market Penetration

AirAsia penetrated the market as low-cost carrier service and AirAsia slogan is “Now everyone can fly” (AirAsia, 2018). AirAsia ensures to attain that everyone can fly in theworld. The way AirAsia trying to penetrate in the market is to gain new customers andretain their loyalty. (ii)Market DevelopmentAirAsia extended business in China, Hong Kong, Macau, Japan, Korea and Taiwan (Richard, 2016).

AirAsia opened first new routes that no one did before. AirAsia planning to get route to Los Angeles from Kuala Lumper in next year 2019 (Chester, 2018). It will be one Stop flight similar as flight to Hawaii.(ii)Product DevelopmentAirAsia operated alone until 2007 and tune group has created in turbulent year in 2008. AirAsia has associate companies such as AirAsia X and tune group (Tune money, Tune talk, Tune Sport, Tune Studios, & Tune air etc).

Tune money is Asia first no frill online service and it desired to enrich lives by offering affordable prepaid loyal card and general insurance products (Johnson et al., 2017).Tune talk, mobile operator that gives customers with low calling rates in the lowest rate nationwide (Johnson et al., 2017).Tune Sport which is Formula 1 racing team and sports car manufacturer and professional basketball league (Johnson et al., 2017).Tune Studios that helps to penetrate Asian and international market through concerts and audio production. It also strikes the market with event planning and management (Johnson et al., 2017).

Conclusion

Customers service play as main role in exponent of brand image and is a special component to measure service quality. It can be developed by special services from down to top such as proper training for soft skills and coaching for employees. AirAsia needs to ensure that they have monitor closely customer satisfaction according to company policies, missions and values. In order to gain sales and brand development, from down to top (employees-top management) should learn to give good customers service.

Recommendation

As AirAsia is leading as marketing leader in low-cost service, need to improve their services. It shouldn’t be limited services although it’s low cost airline. In-flight advertising is an optimal way for AirAsia to reach out for first timer and if it’s possible to influence them to fly with AirAsia on their return trip. AirAsia should open more destinations to access more people easily. To avoid complaints from customers, AirAsia should upgrade on flight cancellation and delay issues.

Reference Lists:

AirAsia. (2018, Sep). AirAsia. Retrieved from AirAsia: https://www.airasia.com/bn/en/about-us/airasia-mission-vision-values.page

Asia, A. (2018, Sep 14). AirAsia BIG launches BIG Xchange, the world’s first airline points exchange platform. Retrieved from Air Asia: https://newsroom.airasia.com/news/airasia-big-launches-big-xchange-the-worlds-first-airline-points-exchange-platform

Chester, T. (2018, March 23). AirAsia X to add three routes in second half of 2018. Retrieved from The Edge Markets: http://www.theedgemarkets.com/article/airasia-x-add-three-routes-second-half-2018

Gürhan , U. (2007, June). CORE COMPETENCE:A COMPETITIVE BASE FOR ORGANIZATIONAL. Journal of Global Strategic Management , I(1), 5-16. Retrieved from http://isma.info/uploads/files/005-core-competence-a-competitive-base-for-organizational-success.pdf

Johnson, G., Whittington, R., Scholes, K., Angwin, D., & Regner, P. (2017). Exploring Strategy Tenth edition. United Kingdom: Pearson Education Limited.

Jurevicius, O. (2013, October 21). Strategic Management Insights. Retrieved from Strategic Management Insights: https://www.strategicmanagementinsight.com/tools/vrio.htm

Richard, M. (2016, September 24). AirAsia looks at new market opportunites. Retrieved from routesonlin: https://www.routesonline.com/news/29/breaking-news/268820/airasia-looks-at-new-market-opportunities/2