AirAsia Berhad (AirAsia) | Analysis

advertizeAsia Berhad (AirAsia) AnalysisIntroductionAirAsia Berhad (AirAsia) is one of the star commencement price flight paths in South East Asia which has expanded rapidly since 2001. The federation is based in Kuala Lumpur, Malaysia and has successfully positioned itself in customers mind by the guileless slogan Now Everyone Can Fly (AirAsia, 2009). The compevery is currently nurtured at approximately RM2.7 billion and has a total of 60 occupationcrafts that fly to over 50 domestic and international destinations with over 400 domestic and international flights daily (Euromonitor International, 2009). The operation for the neat and long haul are handled by AirAsia and its sister company, AirAsia X Sdn Bhd (AirAsia X).AirAsia aims to establish itself as a star depression speak to carrier in market placeplace by valuing its customers through cost advantages fixd by usable effectiveness and efficiency. More customers are able to fly taking into consideration the low fare charges as AirAsia capture segments of customers that previously could not afford the airways fare.Whether the dodging exploits the companys key resourcesEach organisation is unique in terms of it resources and capabilities and the key to success merely depend on its ability to find or create a competence that is distinctive (Teece et.al.,1997). The Resource Based View (RBV) combines two perspectives, the internal analysis of phenomena in spite of appearance an organisation and an external analysis of the industry and its belligerent purlieu (Collis and Montgomery, 1995). It goes beyond the Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis by integrate internal and external perspectives. The ability of an organisations resources to present competitive advantages could not be determine without taking into considerations the lodger competitive concept. Barney (1995) indicated that organisations resources and capabilities essential be evaluated in terms of v alue, rarity, imitability or non-substitutability (VRINE model).The value of the resources and capabilities interacts with the market sources and will resist based on time and industry. The three fundamental market forces scarcity, essential 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 meet market demand. As for AirAsia, the organisation relies on its human resources and management capabilities wherein these two components arrest satisfied the value extremity as it has been able to meet the demand for the Low Cost Carrier (LCC) market. The resources and capabilities own by AirAsia are very(prenominal) in the market however aspect such as work elaboration and innovative passages differs it from the competitors. In applying the RBV concept, AirAsia has a competitive parity based on its valuable and n ot rare resources and capabilities. Immitability is something generic in the airline industry as aircraft, fast turnarounds time and others are easily duplicate. One of AirAsias imitable characteristics is path dependance wherein a characteristics of resources is developed and/or accumulated through a unique series of time. AirAsias work culture of openness between employees as well as the leadership from its Chief Executive Officer is something shed been built up over a period of time which is difficult to duplicate. Moreover, the high capital requirement for market entry is another factor that leads to difficulty to imitate the resources and capabilities. It is undeniable that the said resources and capability be imitated as competitors will identify the same however it will take time and meanwhile, AirAsia gain the competitive advantages.Having a control and exploiting the resources and capabilities provides competitive advantages to the organizations (Carpenter and Sanders, 20 09). AirAsia has exploited it resources and capabilities which is shown in the financial performance. AirAsia has gradually increased its performance throughout the eld. AirAsias s net profit for the 3rd quarter of 2009 totalled RM130 million ($38.4 million) which is sustained by rising rider numbers and income from transmit-on services. 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 commencement point for firms to develop a strategy. Porters five forces include the overall structure rather than foc employ to any one element. However the forces are not stagnant which tendency to change may occur.AirAsia operates within the airline industry and forces that are driven in the industry would identify the strength and weaknesses of the organisation. in that location is potential market in the Asia for LCC due to the rapid economic and disposable incomes growth. Infrastructure such as high hurrying trains and highways has yet to meet the high standard level and therefore customers tend to choose the air as mode of transportation. Hence, threats of substitutes are low as the geographical structure of Asia has made air trigger off the viable, competent and convenient mode of transportation. Looking into this scenario, AirAsia entered the airline industry concentrating on the LCC and noted that at the initial compass point there were less tilt but as the industry grows, the rivalry among established firms become high partly due to price issues. AirAsias main competitors are Firefly, Tiger Airways and Jetstar Asia. Knowing the said changes, AirAsia applied the edition process (Hanan Freeman, 1984) by expanding its operation to long haul services t o various destinations. Moreover, AirAsia realise the price is negative and try to avoid direct price competition and try to create a friendly competition environment.As there is positive growth in the airline industry, full service airline carriers amaze refocused its operation related to cost and yields as it is seen as a requirement to maintain profitability (Graham and Vowles, 2006). There is possibility of radical entrance by other LCC which creates further competition in the industry. For example, Firefly stigmatize up up by Malaysia Airline System Berhad is a part of LCC industry in Malaysia that has adapted AirAsias low cost 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 high capital requirement and government barriers air service agreement can act as barriers to entry. collectable to significant growth within the industry, demand fo r special 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 doubled in the past four years (Shameem, 2006). Due to few players, Boeing and Airbus and lack 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 swirl 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 cable is viable and there is healthy profitability provided AirAsia unceasingly improves itself and is flexible in the challenging market.The sustainability of the differentiatorsPorter (1996) indicated that to outperform rivals, an organisation use up to deliver greater value to customers or/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 break ups by providing substantially low fares with no frills concept by offering innovative routes.Murray (1988) indicated that there is uncertainty for sustainable specialisation to be achieved through product innovation and suggested that the area that could be concentrated for the said differentiation is tonicity and service. While, Porter (1996) highlighted that positioning are successful based on activity system and simple consistency between each activity aligning with the organisation strategy. AirAsia builds it brand name by providing a good quality service at a low price. 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 explore to create excitement amongst their customers with the range of innovative and change service such as self check-in.Due to AirAsias success in the industry, competition might one 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 which allows it to establish itself before competi tion 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.Through AirAsia philosophy of Now Everyone Can Fly, AirAsia has embarked a revolution in air travel with more and more people around the region choosing AirAsia as their preferred choice of transport. As Air Asia never-endingly strives to promote air travel, AirAsia also seek to create excitement amongst their guests with they range of innovative and personalized service. Moreover customer loyalty is build by the differentiation which could act as a disaffirmation against rivalry (Eng, 1994).Whether the elements of the strategy are consistent and aligned with the strategical positionStrategy works as a driver in a firm in achieving goals and objectives (Carpenter and Sanders, 2009). AirAsias five strategy elements are as followsPorter (1996) presented three generic strategies that an organisation could use to overcome the five forces and achieve competitive advantage. However, there were studies resulting that adapting one or more forms of competitive advantage will outperform better (Murray, 1988). 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 be (Flouris and Walker, 2005).With the positive growth in the LCC, it will create luck to others to enter the market. Competition between carriers using the same business model will inevitably be intense. One of the major pitfall against attempting to differentiate is by trying to combine low cost and differentiation strategy by starting to add frills in its business model. However, by applying the said strategy, carriers have lost their source of c ompetitive 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.Murray (1988) disagrees that cost structure is live in relation to the output performance compared to the price sensitivity. Factors such as economy of scale 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 searching 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). As the result from efficient operation, it minimizes the cost that is then passed on to customers so that low-cost air travel can become a reality. In 2005, the cost per available seat myocardial infarction (ASK) for Airasia was only 0.3 compared to the next lowest value from 0.6 being Firefly (www.airasia.com).AirAsia took advantage from the existence of e-commerce which is cheaper and easier technique in providing information about products and services. Furthermore, it gives a better and more convenient way of promoting the companys product and services. The cost related to web is very low compared to other orders like advertisement on television. AirAsia has taken advantage from this method to reduce the cost of operations that leads to operating on a low rate. Malaysia government has supported AirAsia through the opening of the LCC terminal in Kuala Lumpur International Airport which enhanced its competitive edge by reduction costs and better logistic planning (Euromonitor International, 2009).Competitors tend to know how big the marke t 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 it is difficult for the competitors to copy. affirmable issues associated with implementationStrategy 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 business design as it is critical to the long term success. The main causality is because the more gap between arises between the competiting airlines, the more flexibility will be available to offer lower price and gain market share. An extended route system will most(prenominal) for certain be a key differentiator and to sustain its competitive advantages, resources and capabilities need to be analysed further. Around the world, it has been discover that low cost airlines pursuing a generic business design have emerged as the most successful.ConclusionAA actual main strength was based in its innovative ways to keep the cost low which was hard to imitate. AirAsia has indicated that synergies between the internal and external factors could develop a competitive advantage. This has allowed AirAsia to positioned and be the market leader in the LCC.The brand name brand equity is a major strength that AirAsia must successfully capitalize.BibliographyBarney J.B. Looking Inside for Competitive Advantage (1995) Academy of Management Executive. 9(4) pp. 49-61Carpenter, M.A., Sanders W.G. Strategic Management A Dynamic Perspective Concepts and Cases (2009) Pearson International Edition.Collis, D. J.,Montgomery, C. A. Competing on Resources (1995) Harvard moving in Review. pp. 118-128Graham B., Vowles T.M. Carriers within Carriers A Strategic answer to Low-Cost Airline Competition(2006) Transport Reviews, pp. 105-126Porter M.E., What is Strategy (1996) Harvard Business School, pp. 61-78Shameen A. AirAsia Takes Flights on Low Cost Carriers (September 26, 2006), Business WeekTeece, D.J., Pisano G., Shuen, Amy. Dyanmic Capabilities and Strategic Management (1997) Strategic Management Journal. 18(7), pp. 509-533