How Technological Change Affects AirAsia Airline Company - Case Study Example

Running head: Contemporary Development in Business and Management “How technological change affects AirAsia Airline Company” Student’s name Institution Course Professor Date Introduction Technology plays a fundamental role in the current business environment. The rapid changes in the business and organizations have been linked to changes in technology. Due to industrial revolution, electronic networks will enable people to transcend the barriers of time and distance and also take advantage of global markets and vast business opportunities (Man, Cary, 2009). Company’s profile AirAsia: The World’s lowest cost airline The vision of AirAsia To be the largest low cost air line in Asia which can serve three billion people who are at present are underserved with poor connectivity and high fares. Thus everybody can now fly with ease. Mission statement of the AirAsia The airline works to attain the below mentioned mission To be the best company to work for; for instance employees are treated as part of a big family To create a globally recognized ASEAN brand To attain the lowest cost of travel and this can allow everyone to fly with the airline To maintain the high quality product and services with great emphasis on technology so that this can reduce costs and improve levels of service The core values of the airline The fundamental strategies includes Safety first High aircraft utilization Low fare with no frills Streamline operations Lean distribution system Point to point network The foundation that underpins the abovementioned fundamental strategies includes; strong cash flow, low cost, efficiency and stimulate new markets. Background information of AirAsia The airline was established in 1993 and started its operation in November 1996. In December 2001, the HICOM Holdings Bhd sold the airline to Tune Air SdnBhd managed by Tony Fernandes and it became one of the largest, award winning and low fare airline. The airline operates on domestic, regional and international flights that are properly scheduled to over 400 destinations covering over 25 countries (www.airasia.com). Upon its commencement of operations, it has flown over 100 million guests being guided by a core philosophy “Now Everyone can Fly”. The main terminal hub for the airline is known as Low-Cost Carrier Terminal (LCCT) which is situated at Kuala Lumpur International Airport in Malaysia (Christer, 2011). The number of employees working in the company is approximately 8,000 with the company having grown from two planes in the year 2002 to a fleet of 86 aircraft. With this number of fleets, 30 million people can be flown with ease. Associated companies related to AirAsia includes the following; AirAsia X, Thai AirAsia, Air Asia Philippines and AirAsia Japan. The organizational structure is flat and simple with a group of staff reporting to one manager. The few levels of management allow the achievement in cost reduction and consistency (Christer, 2011). Furthermore, the cost leadership strategy guaranteed the company to focus more in crucial areas such as operations, in and out-bound logistics, marketing, services and customer. AirAsia operates on a single type of aircraft, the Boeing 737-300 due to its cost effectiveness and efficiency. The employees receive proper on-job training workshops so that they carry out multiple chores successfully within a flat and simple organizational structure (Oxford Business Group, 2007) SWOT ANALYSIS OF AIRASIA AIRLINE Strength There are low cost operations There is effective, focused and aggressive management with fewer management levels The company is able to penetrate and stimulate potential markets globally It has efficient, result-oriented and incentive workforce due to their multi-skilled nature The business model is simple, proven and consistently delivers the lowest fares Maintenance fee and pilot training costs are limited due to single type fleet. Weaknesses Brand or company image is a challenge for market position and development Outsourcing is heavily relied on during airline operations There are cases of government interference and regulations on matters that are related to passenger compensation and airport deals. Lower costs limits service resource Limited human resources are not able to handled irregular scenarios New entrants can pose stiff competition due to their price sensitive services. Opportunities High fuel prices will squeeze out unprofitable competitors Long haul flights are a chance to get into undeveloped market share Ongoing industry consolidation is due to open up prospects for airports and new routes Privatization and deregulation provides opportunities to increase market share and expand the markets. High growth in airline traffic implies an opportunity to expand the business regionally Larger working age population and existence of large pool of low income passengers Technology advancement reduces the operational costs Internet telephony as new services helps to leverage on new technologies to increase sales Threats System disruption may occur due to over-reliance on online sales Aviation regulations and government policy High fuel prices can reduce the accrued profits Full service airlines may cut costs in order to compete with it Entrance of other larger airlines companies Accidents, disaster and terrorist attack may impact negatively customer confidence In producing value added services, an extra operational costs may be required Technology and innovation Technology refers to adoption of new production techniques and production equipments as scientific knowledge with a view to improve efficiency and competitiveness of the business AirAsia Airline Company must abide all the regulations within each states it operations on for innovation to take place effectively. It also ensures that it maintains strict maintenance standards on its planes. As an innovation strategy, AirAsia managed to design aircraft cabins with an objective to minimize cost, cleaning time, and wear and tear. It allowed increase in revenues and faster turnarounds between fights. The government policies such as privatization and deregulation of the airline industry were important drivers towards the success of the AirAsia (Chan, 2000). Information and communications technology In the Southeast Asia region, the AirAsia was the first airline to make use of e-ticketing. This technology resulted to traditional travel agents being bypassed during tickets processing and acquisition (Buhalis, 2004). Consequently, the implementation of e-ticketing by the airline enabled the cost of issuing the physical tickets to be saved significantly and the need for vast and expensive booking and reservations systems in the hubs be eliminated. It made possible to new and potential customers to purchase their tickets either at designated bank automatic teller machines (ATM) or at nearest post offices (Duane, Hoskisson and Hirt, 2010). Indeed, the company had the capability to leverage on technologies ahead of the potential competitors which eventually made it to lower operational costs and increase sales. Information and communication technology (ICT) utilized by Airasia will facilitate the global expansion of the businesses through coordination and control. Through ICT monitoring and control can be achieved within the workplace. Furthermore, internal communication will be more effective (Buhalis, 2004). The use of Information Technology has played a vital task in the strategic and operations management of the AirAsia airlines. The current Information Technology (IT) such as Enterprise resource planning (ERP), Computer reservation system (CRS) and yield management system (YMS) are being implemented by the airline. AirAsia airline has embraced the use of technology through online business. The website of AirAsia especially the homepage is very fascinating, multitasking and user friendly coupled with interactive buttons and accurate information. This accurate information encompasses on flight booking, packages, pricing and vacations. Furthermore, it provides fundamental elements such as site maps, on-time performance and guarantee, scenic photographs of places to visit and go-in-sure hospital income plan (Duane, et al 2010). Due to continual advertizing and promotional packages, the company has build an in-depth trust which has make both new and potential customers to have confidence especially when dealing with the website of the airline. Among the elements of developing trust include safe, accurate and encrypted payment process for online transactions. Order processing is efficient and timely since payment can be made by either credit card or not (Duane, et al 2010). Therefore immediate purchasing services can be easily met at anytime and anywhere across the entire globe. The airline fosters dependency on internet technology for instance the use of direct ticketing. Moreover, online booking, boarding and online checking for promotions or flight status can be easily pass on mobiles phones due to advent of information and communication technology. Due to simple boarding processes, the grounds waits among the passengers have shortened to a greater extent (Buhalis, 2004). The existence of a dynamic environment in the company between the management and the employments is enhanced due to cordial relationship existing in them. Thus, there are no communications barriers between employers and employers of the company (Duane, et al 2010). Quarterly meetings are the part of the organization culture. As an employee motivation, the airline rewards its staff with free flights. In order to compete favourably in the global markets have improved due to aggressive marketing tactics, promotional packages and massive advertising. The airline outsources the information technology needs from external companies based on competitive bids. The new and potential customers can purchase tickets directly from the website and the call center (Kho &Aruan, 2005). The operating costs are kept low as much as possible. Consequently, the airline utilizes Navitair’s Open Skies computer reservation system. The system entails web-based sales and inventory that is able to link call center and permit the passengers to print boarding passes. The linkage between AirAsia airlines with Virgin airlines allowed valuable industry experience and financial backing (Oxford Business Group, 2007). What motivates business to innovates Innovation is a fundamental concept to the success and survival of a firm/industry in the current business environment. The AirAsia airline company has the ability to innovate due to availability of its extensive quality innovative resources. The company wants to satisfy adequately both its customers and suppliers. At the end of the day, the airline is able to increase the revenues and lower the operational costs. Favourable government policy can make firms and industries that are big and high technology to innovate. The intense competition being faced by the AirAsia especially from other lower cost carriers and other airlines have motivated it to innovative in key areas such as strategic and operation management with great emphasis placed on customers’ satisfaction. Why technology is important to business i.e AirAsia airline industry Technology has brought immense success to the AirAsia airline industry. For instance, both new and improved goods and service can accrue huge revenues, profits and growth due to implementation of technology during the operations of the airline (Kho &Aruan, 2005). The customers especially those from internet are well informed and have power over the AirAsia in situations where it cannot maintain the known low costs leadership position. The acquisition of more fuel-efficient aircraft (A320) ensures that the company keeps the costs low and also has sufficient capacity to meet the ever growing demands and needs of the esteemed customers (Delfmann, 2011). The aircraft has been able to lower the fuel consumption by approximately 12 per cent of the total operating costs. Increase in usage of telecommunications services, for instance online air tickets buying and internet telephony gave the AirAsia Company a privilege to leverage on new technologies with a view to increase sales. Vast marketing through website and call center and direct sales, the company is able to keep costs low. Thus the airline avoids paying commissions to travel agents (Kho &Aruan, 2005). Small and medium firms and industries are able to compete favourably with the bigger rivals. For example, the AirAsia is able to earn significant returns due to the use of technology such as internet and the low cost model which made it to be more efficient than other low cost carriers (LCC) and full service carriers as competitors. The low cost carrier strategy of the AirAsia operates to maintain efficiencies in order to maintain the lowest fares. This has made the airline a barrier to new entrants to the markets. The low cost carriage and ability to make profits has made it difficult for other competitors (low cost carriers (LCC) and full service carriers) to obtain significant efficiencies to become a substitute for the airline’s niche markets (Kho &Aruan, 2005). Indeed, the company is in a shielded position against new and current competitors. Due to their low cost leadership, it is able to weather down the prices and still maintain optimum profits after their competitors have competed away their hard-earned profits. The acquisition of tacit knowledge by leveraging on new technologies such as internet and the religious zeal to cost-avoidance assured that AirAsia attains sustainable competitive advantage over its competitors. The heavy leverage on innovative ideas resulted in significant ancillary revenues from the extra services from its related products (Oxford Business Group, 2007). For example, the airline had its own branded credit cards which can provide travel services. Internet-based activities such as online holiday and hotel reservations and e-commerce helped the airline to derive additional revenues. There is increased productivity and reduced costs within the Airasia airline industry. The utilization of information technology (IT) by the airline have contributed to low distribution costs, low cost operations and fixed costs due to single aircraft type. For instance, AirAsia airline motivates its employees through provision of a competitive and attractive remuneration policy. The policy ranges from productivity and performance-based bonuses and offer of shares as part of incentives (Kho &Aruan, 2005). Moreover adoption of a sector pay policy gave extra incentives which made the company to have few crews per flight. These initiatives help the airline to improve its productivity and significantly strengthened the employee-employer cordial relationships. Secondary airports which involved lower landing, parking and ground handling fees enabled the airline to increase sales whereas the operating costs are kept low. In addition, these airports had shorter runways and were less busy which made them consume less fuel (Postorino, 2010). A well implemented and flexible work rules and streamlined administrative functions by the AirAsia airline company allowed monitoring and control of its employees (Sing, Pangarkar, Heracleous, 2004). The human resources policy ensures the staffs perform multiple roles which eventually lowered the personnel expenses. The AirAsia airline company adopted flat organizational structure which allowed better communication from bottom to top hierarchy or management and the employees. With free flow of communication, the management can lobby their employees in matters related to cost saving ideas. Consequently, it also allows the company to create capability and synergy to supply the full spectrum of low cost carrier services (Postorino, 2010). In order to outwit its rivals, the airlines did lower its fares significantly than those of other airline service providers. Consequently, reputation has been enhanced due to continual promotional pricing strategy. Customer relationship management is in place where customers are given priority in every undertaking in the company. With the initiative, the potential customers are always connected to the AirAsia programs (Lim, 2012). Such programs are not limited to flight change information, promotional booking offers, News updates and phone circulars. The development of the company has made outstanding improvement due to satisfied selling process, customer buying process and customer usage experience (Sing, Pangarkar, Heracleous, 2004). However there are threats and challenges when utilizing technology during business operations. They include; creative destruction, product obsolescence and research and design (R&D) risky Protecting technology Bill Gates acknowledged that it has become imperative for chief executives to have refined expertise relating to intellectual property issues and not just a general understanding of those issues that affect their business and their industry (Financial times, 2004). Firms or industries can protect their intellectual property through; trademarks and designs, copyright that can be placed on literature, music TV, film and patents cover exclusive right to exploit an idea commercially. Alternatively, technology can also be protected through secrecy or preventing employees working for a rival companies or firms. All trademarks, trade names and logos in the website owned by Airasia must not be used in any way without prior written consent of AirAsia. No license is granted in respect to the use of products, technology of the airline company. Protection of intellectual property by the airline can be hampered by insufficient enforcement of relevant laws and regulations. These challenges are attributed to software piracies which end up being disincentive for investments involving high technology. However, there are problems in the process of protecting technology. These includes Costs Multiple applications Differing protection periods Application time Enforcement Conclusion Technology plays a fundamental role in the current business environment. The rapid changes in the business and organizations have been linked to changes in technology. The Airasia airline company has embraced technology during the day to day operations. Its competitive advantage has been attributed to: usage of one type of aircraft, Airbus A320, Economies of scale, small inventories, and reduced employee training time and learning curve and ability to cut operational costs by 50 per cent. The strength of AirAsia basically influence by its ability to motivate and improve productivity of the workforce. Technology advancement provided the airline with opportunities to lower the operational costs by savings commissions that would have been paid to the travel agents. References AirAsia Corporate Website was retrieved on 24th November 2012 at http://www.airasia.com Chan, D.2000.Air wars in Asia: Competitive and collaborative strategies and tactics in action. Emerald management and development, 19:477-490 Dimitrious Buhalis.2004.eAirlines: Strategic and Tactical use of ICTs in the Airline Industry: University of Surrey Duane, R .I, Hoskisson, R. E., and Hirt, A. M.2010.The Management of strategy: Concepts: Cengage South-Western Emory Christer.2011.Airasia: Junct Kho, C., S. H. Aruan.2005.AirAsia-Strategic IT initiative. Faculty of Economics and Commerce, University of Melbourne. Kulwant sing, Nitrin Pangarkar, Loizos heracleous.2004.Business strategy in Asia: a casebook: Thomson Learning. M.N. Postorino.2010.Development of Regional Airports: Theoretical Analyses and Case Studies: WIT Press Oxford Business Group. 2007. The Report: Malaysia 2007: Oxford Business Group Porter, M. E.1985.Comparative strategy: Creating and sustaining superior performance. New York: The Free Press. Weng Marc Lim.2012.Air Asia: Penetrating Into the South African Airline Industry: GRIN Verlag. Werner Delfmann.2011.Strategic Management in the Aviation Industry: Ashgate Publishing, Ltd. Wong Pui Man, Cary.2009.Professional Diploma Program in Logistics and Supply chain management project studies-Enabling Technology in Airline industry. Read More