NATURE OF BUSINESS

Air Asia leading airline was established with the dream of making flying possible for

everyone. Since 2001, Air Asia has swiftly broken travel norms around the globe and has

risen to become the world’s best. With a route network that spans through to over 20

countries, Air Asia continues to pave the way for low-cost aviation through our innovative

solutions, efficient processes and a passionate approach to business. Together with our

associate companies, Air Asia X, Thai Air Asia, Indonesia Air Asia, Philippines Air Asia and

Japan Air Asia.

Focusing on the low-cost, long-haul segment - AirAsia X was established in 2007 to provide

high-frequency and point-to-point networks to the long-haul business. AirAsia X’s cost

efficiencies are derived from maintaining a simple aircraft fleet and a route network based on

low-cost airports, without complex code-sharing and other legacy overheads that weigh down

traditional airlines without compromising on safety. Guests continue to enjoy low fares,

through cost savings that Air Asia pass on to their guests.

Air Asia X’s efficient and reliable operations are fully licensed and monitored by Malaysian

and international regulators, and adhere to full international standards. Air Asia X is

committed in offering X-citing low fares, X-emplary levels of safety and care, and an X-

traordinary in-flight and service experience to all our guests - spreading the amazing Air Asia

experience to X-citing destinations in Australia and Greater Asia.

THE SERVICE ENVIRONMENT

The Key element of Air Asia Success is its constant drive to lower costs. Air Asia faces

various challenges. These challenges can be from the internal and external resources. This

can be very well explained with the Micro and the Macro environment factors:

MICRO ENVIRONMENT

Micro environment define as “The factors which are close to the company that affect its

ability to serve its customers -the company, suppliers, marketing intermediaries, customer

markets, competitors and public”. Micro environment in Air Asia can be define by using

PORTERS 5 Industry forces:

Threat of New Entrants

New entrants to an industry bring new capacity and a desire to gain market share that puts

pressure on prices, costs and the rate of investment necessary to compete. Particularly when

new entrants are diversifying from other markets, they can leverage existing capabilities and

cash flows to shake up competition like Apple did when it entered the music distribution

business. The threat of new entry therefore, puts a cap on the profit potential of an industry.

The threat to Air Asia is relatively less as the capital required to enter the industry is quite

high. However, potential new entrants from full service carriers with a surplus capital could

be threats in the future and long-term.

The Power of Buyers

Powerful customer-the flip side of powerful suppliers-can capture more value by forcing

down prices, demanding better quality or more service, and generally playing industry

participants off against one another at the expense of industry profitability. Buyers are

powerful if they have negotiating leverage relative to industry participants, especially if they

are price sensitive, using their clout primarily to pressure price reduction. The bargaining

power of the buyers is very high as now a day’s tickets can be booked online and if they can

go for the cheapest fares and there is not much cost involved in it.

Offered Different Product

The threat of a substitute is high if it offers an attractive price performance trade-off to the

industry’s product. The better the relative value of the substitute, the tighter is the lid on an

industry’s profit potential. The threat of a substitute is quite low as Air Asia has a network

that spans through more than 20 countries. Air Asia is the leading low-cost carrier,

connecting people and places across 132 routes, 40 of which are offered by no other airline.

To achieve this kind of network it is going to take a lot of time and money.

Government Legislation

Government policy can hinder or aid new entry directly, as well as amplify the other entry

barriers. Government directly limits or even forecloses entry into industries through, for

instance, licensing requirements and restrictions on foreign investment.

Bargaining Power of Suppliers

Every industry has someone to play the role as suppliers. Power of the supplier’s is important

as it will affect the industry. In airline industry, the power of suppliers is quite high since

there are only two major suppliers which are Airbus and Boeing hence there are not many

choices to airline industry. Nevertheless, the global economic crisis has limited the new

entrant and also reducing the upgrade of planes in the immediate future. However, both

suppliers provide almost same standard aircrafts and hence the switching to Air Asia is low.

MACRO ENVIRONMENT

The macro environment consists of the larger societal forces that affect the microenvironment

such as - political, economic, social and technological factors. By using a PEST analysis we

can study the external Macro environmental factors that affect the firm.

Political Aspects

The bilateral agreements hamper the progress of the budget airlines. Even government

intervention hampers the progress of an airline. For example Malaysia government refusing

Air Asia rights to fly to certain counties to protect the interest of the Malaysia airline.

Terrorism threat is also a major factor. For example, after the 11th September incident, the

were series of terrorist and suicide attack that cause people afraid to use an aircraft

transportation.

Economic aspect

Due to the global financial crisis there has been a change in the spending patterns. People

tend to reduce spending on discretionary wants such as taking aircraft transportation. When

the economy’s growth is weak the foreign currency exchange rates are also affected which in-

turn increase the spending of the company.

Social Aspects

Air Asia operates in South East Asia in many countries with different languages. Each

country has diverse cultures and religions. Co-operation in business is given more importance

than individualism. Acceptance of laws and rules can vary. Corruption is rampant and the

rules and regulations are not followed by passengers

Technological Aspect

Ticket-less travel and e-tickets have lowered distribution costs. Over the years, it has built on

its IT platform to increase the ease of customer transactions as well as provide greater savings

to the Group. Air Asia has pushed internet booking services and Air Asia now takes the

majority of bookings direct rather than going through travel agent. The social media, tools

such as Facebook and Twitter and blogs have become integral to the Group’s customer

relationship initiatives. Air Asia has the youngest fleet of aircrafts with state of the art

technology which also provides higher fuel efficiency.