air asia strategies

8/10/2019 Air Asia Strategies

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Air Asia has been named the Worlds Best Low Cost Airline in the annual World Airline

Survey by Sky-trax for five consecutive years from 2009 to 2013. They have offered Southwests

successful people- oriented strategies and Ryanairs efficient operational strategies. However,

Southwest and Ryanair emphasize those strategies in order to differentiate themselves from a

large number of low-cost providers in their highly competitive and relatively saturated American

and European markets, respectively. On the other hand, AirAsia is an imitator in a market with

limited competition and growing demand from a previously nonexistent market segment. This

gives AirAsia the opportunity to be a leader in its own market, while at the same time imitating

and integrating business models that showed to be successful elsewhere. What are these success

strategies? Here is the list

1) Backward Integration: For an airline, one of the key resources is trained staff aligned with the

companys vision which are difficult to find due to the high rate of competition among airlines in

the Asian markets, so AirAsia has setup Asian Aviation Academy with CAE to train personnelrequired in abundance for its ever expansionary vision. Second cause of price constraint on an

airline is fuel which cuts into 33-50% of revenues, Air Asia has bulk discounts on airplane lease,

fuel costs as it operates the biggest fleet in Asia, supplier side bargaining is a strategic advantage

for this MAA aims at starting leasing house,

2) Forward Integration: 85 per cent of Air Asia tickets are sold through its website, limiting agents

commission. Air Asia has partnered with Expedia for providing ticketing and hotel combination

deals, hotel margins add further revenues and AAE has current valuation of 500 million USD.

Apart from this Air Asia runs its own loyalty program convertible to paradigm mall and KLIAshopping rewards for getting consumers to fly more to earn loyalty points and also earn auxiliary

income from sales. AirAsia has its own payment card called EZPay or Tune card which is a

closed loop payment network and hence lowers payment bank charges on conversion to country

currencies where the Airline operates in. Cargo handling services of airports have now been

brought under AirAsia service as Redbox, cargo delivery with door to door delivery. Duty free

shops to be launched which will provide customers international shopping experience from the

convenience of their flights with delivery options added within.

3) Horizontal Integration: AirAsia bought 40% stake in Batavia airlines(fourth largest ) in Indonesiato gain additional routes and also bought zest airlines to create AirAsia Zest, AirAsia acquired an

85% economic interest and 49% voting rights in ZestAir, as well as a 100% interest in Yao's

Asiawide Airways Inc.

4) Diversification


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Diversification strategy is distinct as an organization essentially moves out of its current products

and markets into new areas. AirAsias related diversificati on strategy was mainly in the form of

backward, forward, and horizontal integration. The airlines backward integration strategy was

executed as the company extended its operations towards its growth of its ancillary products and

services.5) Market Penetration: Market penetration occurs when a company penetrates a market with its

existing product range and strategic capabilities and obtains increased market share. For example,

AirAsia, with its relatively low market share, succeeded at attacking Malaysia Airline System s

market share in the domestic airline industry. This strategy begins with the existing customers of

the organization and is used by companies to increase sales without drifting from the original

product-market strategy. AirAsia penetrated the a viation industry by gaining the competitors

customers, improving the product quality and its level of service, attracting non-users of the

products or convincing current customers to use more of the company's products through its promotions and obtaining substantial media coverage due to its fairytale success. This strategy

was important for AirAsia because retaining existing customers is cheaper than attracting new

ones and engaging in relationship marketing activities is pertinent to retain its high lifetime value

customers

6) Retrenchment: AirAsia focusses on excessive cost cutting on low resource utilization, it has an

industry defining low average personnel per airplane at 80, and it believes in turnaround times

from airports at 20 minutes to save on usage costs and has an average operating mean of 12.5

hours a day and goes as high as 16 hours in some countries. All auxiliary services are paid and norefunds are provided for ticket cancellations to ensure no seats are vacant. Point to point travel

maps are drawn to get the maximum route utilization and lowest tariff airlines or those who offer

maximum discounts or sops are selected for AirAsia operations.

FINANCIAL IMPACT OF STRATEGIES ON PERFORMANCE: Revenue growth

The Asian airline market continues to grow, gaining market share after surpassing the West last year to

become the largest market in the world. According to Oliver Wymans annual Airline Economic

Analysis, the ranking of world regions in terms of airline capacity has flipped during the past few years.Asia now ranks first, Europe second, and the U.S. third. Just four years ago the positions were reversed.


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When compared with 2009, the rankings have reversed in 2013

Now, when we look at the Asian market only, LCCs now account for only 15% of Asias fleet and

slightly over 20% of seat capacity but approximately 50% of orders. Ten years ago LCCs accounted for

only about 2% of total capacity in Asia-Pacific. When compared to developed markets this sector isnascent and has a huge scope for growth. Primary share in this sector is of

Asia-Pacific low-cost carriers ranked by fleet size: as of 31-Dec-2013

Rank Carrier Country LCC GroupAircraft as of 31-Dec-2013


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1 JT Lion Air Indonesia Lion 94^^

2 AK AirAsia Malaysia AirAsia 74

3 JQ Jetstar Airways Australia Jetstar 74

4 6E IndiGo India (independent) 73

5 SG SpiceJet India (independent) 56

But according to new plane orders the future looks bright for AirAsia as the Lion and AirAsia/AirAsia X

groups accounts for 964 or over 60% of the 1,591 aircraft on order by the Asia-Pacific LCC sector.

Asia-Pacific aircraft orders by LCC group: as of 31-Dec-2013Group Current fleet On order*Lion 133 576AirAsia/AirAsia X 172 388Jetstar 116 125VietJet 10 70Tigerair 51 18Source: CAPA Fleet Database

AIRASIA

For AirAsia the revenue growth has been positive for first quarter 2014, while recuperating from the

political unrest in Thailand and high margin pressure in Malaysia and Indonesia.
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This has been achieved as AirAsia has significant breathing margins over its competitors, even though the

margins have been compromised in countries like Malaysia and India, but on an average it enjoys the

highest margins due to the growth of ancillary services.

AIRASIA STRATEGIC GAME DISCUSSION

The LCC business model works best when passengers can be stimulated to travel by offering very low

fares in the market. Passengers who wouldnt previously have flown because of high fares are now

stimulated to fly, thereby creating a new passenger market. The full stimulation effect of low fares in an

existing market occurs when the fare differential is greatest; normally when the first LCC comes onto the

route. If the existing average fare is, for example 4000 rupees and the new average fare offered is 900


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rupees, then the potential to stimulate a significant additional market is apparent. However, once the

average base fare has been established at 900, then further discounting to 800 by a second new entrant

LCC cannot stimulate the market with anything like the initial impact of the Rs 3100 reduction.

The floor in the average fare is the level below which services become uneconomical, where revenues

dont cover the costs even if the aircraft is full. In competitive situations, airlines might operate at belo w

cost levels in the short-term to try and chase off the competition, but ultimately a route will only survive if

it can be operated at a profit. In the example above, the second LCC in the market would have very little

room for maneuver, as the margin between the average fare of 900 and the airlines breakeven could be

very small indeed. Once low-fare stimulation has been fully played out, the competition becomes a battle

for market share, a reversion to normal competitive conditions, albeit at lower fares. The driver for traffic

growth passes from the airlines to the passengers: the state of the economy and the disposable wealth of

the population become the engines for further growth; just as they were before the low-cost carriers

arrived on the scene.

air asia strategies

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