Air Asia’ s Core Competencies and its

success Factors

By : Nasser ALDhahli

SEGi University

DBA 2012

SCM -020314

MGT7144- Management Research Skills, Action & Strategy

Assignment 2 ( Group Discussion and Presentation)

IntroductionIncreasing liberalization of the regulatory environment in which regional and global airlines compete has created challenges for major carriers as well as opportunities for carriers that are able to deliver high-quality services at the lowest possible price.

As a result, low-cost airlines are an increasingly common sight in airports around the world where no-frill air carriers are providing reliable service at a fraction of the price charged by full-price competitors. such as AirAsia

Air Asia , Profile• Established in 1993 and commenced operation on 18 November

1996.

• 2001, it was purchased by former Time Warner executive Tony

Fernandes’s company Tune Air Sdn Bhd from the ownership of HICOM

Holdings Bhd for the token sum of only RM1, and with only 2 Boeing

737-300 aircraft together with RM40 million in debt.

• AirAsia Berhad is a Malaysia-based low-cost airline.

• The largest low-fare, no-frills airline and a pioneer of low cost travel

in Asia.

• Operates scheduled domestic and international flights to over 400

destinations spanning to 25 countries.

• Had flown over 100 million guests upon the core believe that ‘Now

Everyone Can Fly’.

• Main terminal hub is the Low-Cost Carrier Terminal (LCCT) at Kuala

Lumpur International Airport (KLIA).

• AirAsia’s associates companies- AirAsia X, Thai AirAsia (TAA), Indonesia

(IAA) and Malaysia AirAsia (MAA), and VietJet AirAsia.

Safety First

• High Aircraft

Utilization

• Low Fare, No

Frills

• Streamline

Operations

•Lean Distribution

System

• Point to Point

Network

Key Strategies

Air Asia.com 2012

Root of Competitive advantage of Air Asia

Adapted from Study slide For Dr. Abang, 2013

Capabilities Foster a dependency on Internet technology, eg. online booking,

online checking (flight status, promotions).

Investment in the AirAsia Academy.

Dynamic environment between employees.

No communication barriers between employers and employees,

friendly.

Aggressive marketing tactics, massive advertising, promotional

packages etc

Employees motivation- rewards free flights for their staff.

Offer customers the ticketless concept.

Low operating cost- wages, airport fees, short ground waits due

to simple boarding processes.

Keeping cost low- uses one type of aircraft, Airbus.

CORE COMPETITVE OF AIR ASIA

1- Usage of one type of aircraft

Economies of scale

Cost can be cut by 50%

Small inventories ( cube-square rule, power of purchasing)

Reduce time on employees training and learning curve

ASK: Available seat kilometers, which is the total number of seats available on scheduled flightsmultiplied by the number of kilometers these seats were flown.

Cost per ASK: Total operating expenses (excluding finance costs and taxation) divided by ASK. In theairline industry, this is comparable to ‘unit cost’.

Air Asia.com 2012

CORE COMPETITVE OF AIR ASIA Cont ,,,,2- Synergy between the AA management and the employees

Management support and motivate employees to work and creativity

Competitors find it hard to follow

3- Productive and Skillful employees

Employees create tips to help in procedures and save time, costs. example: the one type concept

4- Limited passenger service

Food and beverages are not included , transportation from the airplane to the airport not includes etc ….

Airport tax

Frequent, Reliable

Schedules

Standardization fleet of aircraft

High aircraft utilization

Product and skillful employees

and simple aggressive and

focused management

structure

Courteous, but limited passenger

service ( eg. No Meals)

Short Haul , point-to- point routes, often to secondary

airports

COMPETITVE ADVANTAGES LOW COST

Developed for this presentation

Strengths WeaknessesStrong management team consists of industry experts and ex-top government officials( all the board of directors have outstanding portfolio

Low cost operations (ticketless, online booking, online check-in, quick turnaround of 25 minutes, low fares and no frills)

Using single aircraft fleet (reduce the maintenance and training costs)

Enter and focus on potential market (lower and middle income group)

Multi-skilled and well-trained staffs to enhance the efficiencyStrong brand recognition, marketing approach and awareness

Service resource is limited due to low costs

Government interference and regulation on airport deals

Non-central location of secondary airports

Heavy reliance on outsourcing

Complaint from customers regarding the current overcrowded LCCT (handled about 17 million passengers instead of its capability to handle 15 million passengers)

Opportunities Threats

Expansion to new routes based on low cost philosophy (exploit growing markets like China, India)

Higher fuel costs means less profitable competitors may be forced out of business

Partnerships with Virgin airline to use existing strengths (brand recognition, landing rights)

Differentiate from old LCC model (include customer service and operation as full service airline)Long haul flight to approach undeveloped market (Air Asia X to Europe)

Accident and disaster affect customer confidence (Example: an aircraft skidded off the runway while landing at KCH International Airport on Jan 2011)

Aviation regulation and government policy (barriers in new routes expansion)

Full service airlines start cut costs to compete (MAS offered discounted fares with meals and comfortable seats)Entrance of other low cost couriers (Firefly, Tiger Airways)

 

Will Air Asia be able to sustain its Core?

Success factors• Combination of good timing, entrepreneurial vision and

some blind luck that may have run out• Testament to Fernandes’s capabilities as a effective leader

in a wide range of settings.• “The one thing the company managed to keep consistent

was its no-frills model and always offering value in low fares” (Lawton and Doh, P435)

Conclusion

AirAsia’s air fleet has grown with routes servicing 400 destinations in 25 countries with hubs in Malaysia, Thailand and Indonesia today. In addition, Tony Fernandes is responsible for this impressive rate of growth, with many analysts citing his no-frills, low-cost business model as some of the best industry practices.

Thank You!

NOW EVERYONE CAN FLY

References:Corporate profile. (2012). AirAsia. Retrieved from http://www.airasia.com/ot/en/about-us/corporate-profile.page.

Lawton, T. & Doh, J. The ascendance of AirAsia: building a successful budget airline in Asia. Ivey Case Study No. 2.

Clerment. Ong & Ivy Wong . Power Point Presentation on Air Aisa

Dr. Abang N Dahlan . (2013). Seminar 3 Topic 5 Strategy Research