Airasia Berhad Strategy Analysis

Airasia Berhad Strategy AnalysisIntroductionAirAsia Berhad (AirAsia) is the leading beginning personify skyways in southwest vitamin E Asia, which has expanded rapidly since 2001. The troupe is establish in Kuala Lumpur, Malaysia and has successfully positioned itself in customers mind by and through the guileless slogan Now eitherone Can Fly. The political fictional charactery is currently determine at approximately RM2.7 billion and has a total of 60 publicisecrafts that tent-fly to oer 50 municipal and internationalist destinations with over 400 domestic and international flights daily (Euromonitor International, 2009). The operation for the short and immense snatch ar handled by AirAsia and its sister comp whatever, AirAsia X Sdn Bhd (AirAsia X) respectively (AirAsia, 2009).AirAsia aims to establish itself as a leading downcast constitute carrier in foodstuff by valuing its customers through represent advantages created by operational effectiveness and capa bility. More customers ar up to(p) to fly victorious into consideration the low fargon charges as AirAsia capture segments of customers that previously could non afford the air lanes f be.Whether the system exploits the caller-outs key re lineages each(prenominal) organisation is unique in name of it resources and capabilities and the key to success entirely depend on its ability to find or create a competence that is distinctive (Teece, Pisano and Shuen, 1997). The Resource Based View (RBV) combines dickens perspectives, the indwelling analysis of phenomena within an organisation and an away analysis of the diligence and its emulous environment (Eisenhardt and Martin, 2000) and (Collis and Montgomery, 1995). It goes beyond the Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis by integrating internal and external perspectives. The ability of an organisations resources to present war-ridden advantages could non be determine without taking into consi derations the broader warring concept. Barney (1995) indicated that organisations resources and capabilities must be evaluated in terms of range, rarity, inimitability and organisation. Furthermore, Carp assume and Sanders (2009) suggested that in order for a company to progress to competitive advantage, they should possess resources and capabilities that argon valuable, rare, inimitable, nonsubstitutable and exploitable (VRINE trendl).The value of the resources and capabilities interacts with the commercialise sources and exit differ ground on eon and intentness. The three fundamental market forces scarcity, demand and appropriability determines the value of a resources and capabilities (Collis and Montgomery, 1995). In order to answer the question of value, organisation could identify whether the resources and capabilities are able to satiate market demand. As for AirAsia, the organisation relies on its human resources and counselling capabilities wherein these two comp onents have satisfied the value requirement, as it has been able to meet the demand for the busted Cost Carrier (LCC) market.Resources and capabilities owned by AirAsia are homogenous in the market but aspect such as work culture and modernistic routes make it difference from the competitors. For prototype, any ideas to meliorate the operations are welcome from all level of employees and in terms of route, AirAsia try penetrate rude(a) routes and will go to locations that others given up. In RBV concept, AirAsia can be characterised as a competitive parity company based on its valuable but not rare resources and capabilities.In airline product line industry, things like aircraft and fast lapse snip are intimately come afterd by others. Nevertheless, one of AirAsias distinct characteristic is path dependency wherein a characteristic of capabilities is developed and accumulated through a series of beat (Dess, Lumpkin and Eisner, 2008). AirAsias work culture of openness bet ween employees as well as the leadership from its Chief Executive Officer is something have been built up over a uttermost of time which is difficult to duplicate. Moreover, the high detonating device requirement for market entry is another factor that leads to difficulty to imitate the resources and capabilities. It is undeniable that competitors can imitate the said resources and capability, however, it will take time and in the meantime, AirAsia will gain the competitive advantages.Controlling and exploiting the resources and capabilities provides competitive advantages to the organisations (Carpenter and Sanders, 2009). AirAsia has put-upon it resources and capabilities, which is reflected in their financial performance. AirAsia has gradually change magnitude its performance throughout the years. AirAsias s net profit for the 3rd quarter of 2009 totalled RM130 one thousand thousand ($38.4 million) which is experienceed by rising passenger numbers and income from add-on help s. The profit achieved was a turnaround from a RM466 million ($137 million) net loss in the same period last year (www.airasia.com).The fit of the strategy to current industry conditionsThe competitive environment consists of many factors that are particularly relevant to an organisations strategy. Analysing the external environment particularly the industry is a first point for firms to develop a strategy. ostiarys five forces include the overall structure rather than focusing to any one element. However, the forces are not stagnant which tendency to change whitethorn occur.AirAsia operates within the airline industry and forces that are driven in the industry would identify the strength and weaknesses of the organisation.Rivalry among established companiesRisk of entry by potential competitorsBargaining power of buyersBargaining power of suppliersSubstitute Products steepDue to market growthHighFull service airline might want to consider going low damage grimPrice is at the ch eapest. dispiritedLimited provider in the market.Low on that point is controversy train, bus, car travel etcThere is potential market in the Asia for LCC due to the rapid economic and disposable incomes growth. This seems to be a profitable hazard to tap. Infrastructure such as high-speed trains and highways has to date to meet the high standard level and therefore customers tend to lead the air as mode of transportation. Hence, threats of substitutes are low as the geographical structure of Asia has made air travel the viable, efficient and convenient mode of transportation. Looking into this scenario, AirAsia entered the airline industry concentrating on the LCC and noted that at the sign stage there were less disputation but as the industry grows, the rivalry among established firms become higher partly due to wrong issues. AirAsias main competitors are lightning bug, Tiger Airways and Jetstar Asia. Knowing the increase of competition in the market, AirAsia applied the admitation process (Hanan Freeman, 1984) by expanding its operation to long haul services to various destinations. Moreover, AirAsia realise the toll is destructive and try to evacuate direct price competition and try to create a tender competition environment.As there is positive trend in the airline industry, full service airline carriers have refoc designd its operation related to monetary value and yields as it is seen as a requirement to keep on profitability (Graham and Vowles, 2006). There is possibility of new entrance of LCC, which creates further competition in the industry.For example, Firefly was set up by Malaysia Airline System Berhad (MAS) is a part of LCC industry in Malaysia that has adapted AirAsias low terms concept. However, it would not be a threat to AirAsia as Hanan Freeman (1984) highlighted it is difficult to imitate as tacit amount of knowledge is required on the targeted firm. The regime barriers air service agreement and high capital requirement could act as barriers to entry.Due to significant growth within the industry, demand for redundant aircraft has increased and suppliers will be in a powerful position. It was reported that Asia accounts for 40% of new aircraft orders for Boeing and Airbus and seat capacity on LCC worldwide has more than forked in the past four years (Shameem, 2006). Due to few players, Boeing and Airbus, and overlook of competition in the market, the bargaining power of suppliers are low. Consequently, there is not much competition in terms of pricing occurring between the two companies so an airline carrier will have to accept an tenderise from one of the suppliers. The bargaining power for buyers is low as there is no room to bargain for cheaper tickets as AirAsia provides the lowest price compared to other carriers.The biggest threats for AirAsia are the rivalry and risk of entry with the existing and potential competitors. LCC personal credit line is viable and there is healthy profitabilit y provided AirAsia continuously improves itself and is flexible in the ambitious market.The sustainability of the differentiatorsPorter (1996) indicated that to outperform rivals, an organisation necessity to deliver greater value to customers and build comparative value at a lower cost. The airline industry is at the growing stage and therefore stiff competition from existing and new LCC is expected in the future. In order to sustain its competitive advantage, AirAsia needs to leverage its competency in creating cost advantages. At present, AirAsia differentiates by providing substantially low fares with no frills concept and by religious offering innovative routes.Murray (1988) indicated that there is uncertainty for sustainable specialty to be achieved through product innovation and suggested that the area that could be concentrated for the said differentiation is tint and service. While,Porter (1996) highlighted that positioning are successful based on use system and simpl e consistency between each activity positioning with the organisation strategy. AirAsia builds it crisscross name by providing a good whole step service at a low price. Furthermore, AirAsia focuses on branding through campaign and advert such as recent sponsorship deal with an American football team, Oakland Riders.During inception, AirAsia focused on internal destinations and have further entered the international destinations. AirAsia X is differentiated by its long haul LCC as customers would not need to look at different carriers to reach different destinations at a lowest price. It is based on the same no frills service model wherein the price is 80% lower than its competitor together with additional services that requires customer to pay additional payment such as food, entertainment and others. AirAsia also seek to create excitement amongst their customers with the range of innovative and personalized service such as self check-in. Customer devotion is build by the differ entiation, which could act as a defence against rivalry (Eng, 1994).Due to AirAsias success in the industry, competitor might want to adapt the companys business model. However, AirAsia had some advantages over its competitors by the advantage of experience and its brand enjoyed good recognition. AirAsia gain from the first mover advantage in South East Asia which allows it to establish itself before competition perceive further in this low cost segment, apart from competition that already exists across segments (low cost vs. full service carriers). AirAsia has the strength to lay down the rules and framework in the industry for business and operational suitability.Whether the elements of the strategy are consistent and align with the strategic positionStrategy works as a number one wood in a firm in achieving goals and objectives (Carpenter and Sanders, 2009). AirAsias five strategy elements are as followsArenas (where will be active and with how much emphasis)* Low cost airline. specific markets-price sensitive customers (including first-time fliers)* Main base is located at the Low Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport (KLIA). Its tie in airlines, Thai AirAsia and Indonesia AirAsia fly from Suvarnabhumi Airport, Thailand and Soekarno-Hatta International Airport, Indonesia, respectively.Vehicles (How to get there?)* Internal organic evolution via new routes.* strategic partnership.Differentiators (How to win?)* Low cost short and long haul with no-frills. Customers have the choice of customizing services without compromising on quality and services.* Create new segment in airline travel based on value and service.Staging and Pacing (what will the speed and while of moves?)* AirAsia flies to over 60 domestic and international destinations with 50 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand and Indonesia.* AirAsia has flown over 55 million guests across the region and continues to spread its wings to create more gigantic route network through its associate companies, Thai AirAsia and Indonesia AirAsia.Economic logic (How do returns be obtained?)* Low operation cost through locomote with one type of aircraft, uses secondary airport locations etc.* Low cost incentive with various choices of destinations.Porter (1996) presented three generic wine strategies that an organisation could use to overcome the five forces and achieve competitive advantage. Adopting a suitable strategy depends on the organisations industry, customer characteristics and capabilities (Murray ,1988) and (Eng ,1993). However. In the LCC segment, cost is the competitive priority and it determines market position. In lieu of this, AirAsia has applied the focused cost leadership strategy wherein it targets on specific markets price sensitive customers as well as lowering its overall costs (Flouris and Walker, 2005).Murray (1988) disagrees that cost structure is vital in relation to the output per formance compared to the price sensitivity. Factors such as rescue of photographic plate and quality of management teams within the organization could be the benchmark for cost leadership. Under the cost leadership strategy, level of operation efficiency is vital as it assist in achieving cost advantages than the rivals by trenchant continuous areas for cost reduction along its value chain that leads to economies of scale (Eng, 1993). AirAsia increases its efficiency through increased route network and its operating activities by adapting cost optimising techniques such as quick turnaround times and maximising of flight utilisation for its aircrafts (Shari, 2003).AirAsia took advantage from the existence of e-commerce which is easier technique in providing information. The cost related to web is very low compared to other methods like advertisement on television. AirAsia has taken advantage from this method to reduce the cost of operations. Malaysia government has supported Air Asia through the opening of the LCC terminal in Kuala Lumpur International Airport, which heighten its competitive edge by reducing costs and better logistic planning (Euromonitor International, 2009).Competitors tend to know how big the market is and how good the opportunity is in Asia. Therefore, there is threat by competitors, which could imitate AirAsias low cost base. Most of the competitors have the same concept of no frills and low price strategy and will continuously try to reduce its costs than AirAsia in order to gain sustainability in the market. The challenge for AirAsia is to reduce cost effectively which is difficult for the competitors to copy.Possible issues associated with follow throughationStrategy formulation and implementation are interdependent with the objectives being a coherent set of strategy elements and implement levers (Carpenter and Sanders, 2009). In order to succeed in the LCC segment, AirAsia will need to maintain its low cost elements in their bu siness design, as it is critical to the long-term success. The main reason is because the more gaps arise between the competiting airlines, the more flexibility will be available to offer lower price and gain market share. An extended route system will most for certain be a key differentiator and to sustain its competitive advantages, resources and capabilities need to be analysed further.With the growth in the LCC, it will create opportunity to others to enter the market. Competition between carriers using the same business model will inevitably be intense. There were studies resulting that adapting one or more forms of generic strategy will enable organisation to outperform better (Murray, 1988). However, Eng (1993) indicated that Porter discouraged organisations to combine the said strategies as it is inconsistent as for example differentiation is related to cost. One of the major pitfalls against attempting to differentiate is by try to combine low cost and differentiation s trategy by starting to add frills in its business model. By applying this strategy, carriers have lost their source of competitive advantage by narrowing the strategic cost gap. Every frill or service adds to cost and reduced the strategic cost gap, thus curbing the flexibility to offer innovative price deals. almost the world, it has been observed that low cost airlines pursuing a generic business design have emerged as the most successful.ConclusionAirAsias success is based on the no-frills, low fare, simple and convenient option air travel. The company has managed to deliver low fares by consistently keeping cost low through high efficiency in every art of the business and maintaining simplicity. The company has indicated that synergies between the internal and external factors could develop a competitive advantage. This has allowed AirAsia to position and be the market leader for LCC in South East Asia.The brand name is a major strength to AirAsia wherein a business deal of ef fort is being done. For example, initially when considering to enter the UK market, the company has collaborated with Manchester United and posterior with referees of Football Association of England. At the moment, they also collaborated with a giant American football club, Oakland Riders to create brand awareness for the local public in order for them to enter the USA market in the future.BibliographyAirAsia offers a new take on the long haul, low cost airline area (February 2009) Euromonitor International. (assessed on December 2, 2009)Barney J.B. (1995) Looking Inside for Competitive Advantage academy of Management Executive. 9(4) pp. 49-61Carpenter, M.A., Sanders W.G. (2009) strategical Management A Dynamic Perspective Concepts and Cases Edition. second Edition. New Jersey Pearson International EditionCollis, D. J.,Montgomery, C. A. (1995) Competing on Resources Harvard melodic line Review. pp. 118-128Dess, G.G., Lumpkin, G.T., Alan, B.E. (2008) Strategic Management. 4th Ed ition. 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