The Current Strategy at Air Asia - Case Study Example

Strategy Report Name: Date: Table of Contents 1.0 Introduction 3 2.0 Current Strategic Approach at Air Asia 4 3.0 The Fit between Company Strategy and Its Goals and Expectations 6 4.0 Recommended Strategic Plan 7 4.1 Creation of an Air Asia Family 8 4.2 Customer Loyalty Reward Scheme 8 4.3 Integration of the Hub and Spoke System in the airlines operation 9 4.4 Forming Strategic Partnerships 9 4.5 Upgrading its Fleet with Multi-Capacity Aircraft 10 5.0 Conclusion 10 References 11 Strategy Report 1.0 Introduction Air Asia is the leading low cost airline in Asia. Its cost per seat per mile also has the lowest rates in the world in some of its routes. The history of the airline dates back to 2001 after it was bought from DRB-Hicom after a loss making spree (Air Asia 2015, p.1). The rejuvenated Air Asia started its journey by enacting strategic steps that enabled it master its business process to become the leading low cost airline in Asia and the world at large. The company envisions to becoming the leading low cost carrier in Asia serving 3 billion people in the Asian market who are currently not able to access air travel due to the exorbitant airline fees currently charged by other airlines (Air Asia 2015b, p. 1). Although the company enjoys a majority share of the Asian low cost airline market, it is faced by stiff competition from Jet star, Tiger air and Malaysian Airlines. The company saw its profits reduce in 2014. Although the economic crises coupled with other external environment factors influenced this fall; stiff competition in the low cost airline industry can be associated with the small decline. The following report gives an assessment of the current strategy at Air Asia, evaluates its effectiveness in enabling the company realize its goals and objectives and finally outline a possible strategy that can be used by the airline to increase its competitiveness and sustainability in the long term. 2.0 Current Strategic Approach at Air Asia Innovation has been vital to Air Asia’s current success. The company has been able to maintain its low cost airline model via the development of strategic business practices that have enabled it to provide services to its customers at a low fee. On this point, it is worth giving an insight into their do it yourself (DIY) customer service principle that has enabled it to reduce its operational expenses by a substantial margin (Air Asia 2015, p.1). The do it yourself customer service principle cuts across various customer service interfaces; reducing or eliminating the need for customer service representatives thereby reducing the cost of delivering a specific service. This cost reduction is ultimately transferred to the customer who in turn enjoys low cost airline fares. One of the greatest ‘Do it yourself’ innovations at the company was the introduction of ticketless travels. Under this innovation, customers had the chance to access their tickets remotely by the use of their mobile phones of remote internet access devices (Razak & Llias 2011, p.4) (Law, R., & Leung, R., 2000, p. 203). This was soon followed by the SMS ticketing service that allowed customers to access their travel tickets via the use of short message services on their telephone service providers. This innovation serves two main functions namely improving customer services and reduction of operational expenses (McShane et al 2013, p. 31). On this point, it is worth highlighting the fact that remote ticketing provides the company with a wider platform to reach out to more customers. This enables the company to penetrate into the market further in addition to solidifying its hold on the current market. Additionally, it provides the company with a chance to serve its customers better. At its simplest state; this innovation saves customers the plight of having to travel to sales representatives to purchase their tickets. It also saves on the time that would be used queuing. With the flexibility of booking flights at times that are most convenient to a client without interruption of current activities; this innovation has indeed created utility to customers. On the other hand, the do it yourself provides the company with a platform to reduce operational costs. This is due to the fact that the additional funds that would have otherwise been used to pay the employees are saved; thus reducing the cost per unit service. This cost reduction is ultimately transferred to the customers who in turn enjoy low cost air travel. The company also has a strategic sourcing/ procurement strategy in place so as to ensure that it has a constant and sustainable supply of materials required to deliver quality services to its clients. On this point, it is worth highlighting that the airline industry is influenced heavily by macro –economic factors that affect the normal business environment. One of the greatest factors that has a significant influence on the airline industry is the cost of fuel. It can be acknowledged that the cost of fossil fuels has been fluctuating from time to time owing to shifting political, economic and social forces in the world. As such; it is important that airlines have in place procurement practices that enable companies to have a sustainable supply of fuel without compromising on their daily operations (Berghöfer & Lucey 2014, p. 125). It is worth highlighting that in the past economic crises; many airlines suffered losses due to the lack of proper strategies to protect themselves from the woes that come with the fluctuating oil barrel prices. When they were too high; airlines’ suffered massive cuts on their profits. When they hit a record low, some airlines lost their competitive due to inappropriate hedging practices that compelled them to operate at higher costs as compared to their competitors who enjoyed the low fuel costs (Saeed & Alam 2011, p. 42). However, Air Asia has in place a strategic hedging process in place that is backed up by a scenario planning and forecasting strategy that has continually enabled it to source for fuel and other materials from strategic suppliers / partners in such a manner that they ensure that the airline continues to run at lowest possible operation costs (Elbert, Bogusch & Özsucu 2012, p. 42). The airline also has in place an expansion strategy aimed at capturing potential markets that provide a platform for further growth. As at now, the company flies to about 100 destinations in 22 countries around the region. The strategic expansion program will be effective in solidifying the company’s market share in addition to growing it. Air Asia also has high value of its human capital. The company acknowledges that employees are a key source of organizational competitive as illustrated by their good human resource management practices that keep employees motivated thus productive. Lastly, the company has in place service improvement / value addition practices such as luggage allowance for its customers to a specific limit above which it is paid for per unit weight. This provides low cost travelers, most of whom are frequent travelers a chance to carry personal luggage. Lastly, food and beverage services are offered upon request as they are not included in the airline fees; a strategy that enables the company to reduce air tickets further. 3.0 The Fit between Company Strategy and Its Goals and Expectations From the analysis of the current strategies used by Air Asia, it can be acknowledged that they are aligned to its corporate goals and expectations. The do it yourself innovations in customer service enable the company to achieve the goal of providing low cost air travel to its customers. Moreover, it enables the company to make savings on its operational expenses that further enables it to provide low cost services to its clients. Strategic procurement and sourcing enables the company to ensure that it has sustainable supply of materials required to implement its business model. On this point, it is worth acknowledging that hedging has enabled the company sustain a good supply of fuel at a favorable cost; thus being able to have long term plans and also avoid volatility of the international fuel market. This has been instrumental in ensuring that Air Asia has in place a conducive environment that supports low cost airline services. The strategic expansion of the airline has also been instrumental in enabling the company reaches out to potential markets that provides it with an opportunity for growth. This is geared up towards ensuring that its achieves its vision of providing 3 million people with low cost airline travel. Lastly, its effective human resource management practices have enabled it to harness human capital in such a manner that has provided it with organizational capacity that has in turn translated to productivity. The innovation and excellent business processes flow at the company is partially a result of the excellent human resource management strategies. However, it can be acknowledged that the airline industry is highly dynamic; thus requiring that Air Asia comes up with appropriate strategies of sustaining its success in addition to remaining a notch higher above its competitors in the market. The following section discusses various strategies that Air Asia should implement so as to enhance its competitiveness. 4.0 Recommended Strategic Plan It is recommended that Air Asia continues implementing it current strategies as discussed above since they are aligned to its growth and development. However, it is important that the company has in place the following strategies so as to further enhance its position in the market and achieve its objectives further. 4.1 Creation of an Air Asia Family It is recommended that Air Asia comes up with a strategy of creating a corporate family comprised of all stakeholders involved in its operations. This system should specifically focus on the client side. Owing to the fact that there is stiff competition between low cost airlines operating in Asia and around the world, it is important that Air Asia comes up with a strategy of differentiating its products from those offered by its competitors (O’Connell & Williams 2005, p. 263). This can be achieved by providing added value to the company’s products on top of low cost travel. One possible way of doing this is by developing an Air Asia community that enables customers to interact with each other with an aim of creating networks that add value to their social and business lives. On this point, it is worth noting that there is a significant number of business people who use low cost airlines in their daily business. Connecting these business people provides them with a platform to share ideas with each other in addition to building strategic partnerships. It is also worth highlighting that networking is a regarded highly in Asian business world with Guanxi principles being associated with the strength it exhibited in the phase of economic crises (Chua & Wellman 2015, p. 906). As such, Air Asia should develop a computer system that links up the passengers in a healthy manner that adds value to their lives. The Air Asia family will also provide a good environment for employees, supplier and other relevant stakeholders in such a manner that creates a sense of belonging. Ultimately, this strategy is geared up towards enabling the company keep a tight grasp of its current market share. 4.2 Customer Loyalty Reward Scheme Secondly, Air Asia should come up with a customer loyalty reward system. The customer loyalty reward program will enable the company enhance market share retention in addition to expanding it (Evanschitzky, Ramaseshan, Woisetschläger, Richelsen, Blut & Backhaus 2012, p. 626). Collectively, the loyalty reward scheme in addition to the Air Asia family will provide Air Asia with a chance to affirm their grip on the low cost carrier airline market. The customer loyalty reward scheme should serve two purposes. First, it is meant to show appreciation for choosing to fly with Air Asia. The company should award points to its customers that are redeemable for various services such as extra luggage, food & beverage or air ticket. Secondly, it should serve as a referral reward scheme. Customers are also awarded redeemable points or discount for every new passenger they introduce to the Air Asia family (Asiah Omar, Aniza Che Wel, Abd Aziz & Shah Alam 2013, p. 36). This will enable the airline increase its market share via the use of referrals. 4.3 Integration of the Hub and Spoke System in the airlines operation With the deregulation of the airline industry; Air Asia should integrate the hub and spoke system in its operations. This would provide the company with a chance to network its operations in such a manner that it is able to feed its big air craft’s / routes using smaller aircrafts / routes (Farahani, Hekmatfar, Arabani & Nikbakhsh 2013, p. 1098). This would be a great move in ensuring that the company keeps its aircrafts in the air for the maximum possible time thus getting more returns on investment. Additionally, the point to point travelling as provided for by the hub and spoke system provides the company with a chance to provide timely flights that enhance customer experience (Adler & Smilowitz 2007, p. 396). 4.4 Forming Strategic Partnerships Air Asia should also form strategic partnerships with major and regional airlines that would provide it with traffic to board its short distance routes. On this point, it is worth highlighting that low cost airlines have the ability to travel to remote destinations that do not have big airport facilities that are needed by the big aircrafts used by major and regional carriers (Lindstädt & Fauser 2004, p.25). As such, low cost airlines provide a critical link to the destination of choice. On the other hand, low cost airlines serve as feeders to regional and major airlines in the other direction. For this reason, a strategic partnership between Air Asia and major & regional airlines provides the partnering companies with a platform to enjoy mutual benefits that increase their market share and ultimately profits (Liou 2012, p. 62). 4.5 Upgrading its Fleet with Multi-Capacity Aircraft Lastly, it is recommended that the company has in place multi-capacity aircraft so as to be able to schedule its flights better with respect to the number of passengers available (Chen, Lopes, Zimath & Maat n.d , p. 384). This move is meant at reducing fuel consumption per unit service offered. Additionally, low capacity airlines would serve the purpose of flying to low traffic routes and also for pilot study flights to new destinations. 5.0 Conclusion In conclusion, this report has identified that Air Asia has been able to achieve its current success due to the use of appropriate strategies that have placed it as Asia’s leading low cost carrier. Analyzing its current strategies, it was identified that they are currently aligned to its goals and objectives. However, it was identified that the company needs to develop an Air Asia family, customer loyalty reward plan, hub and spoke system, form strategic partnerships and have in place multi – capacity fleet so as to sustain its success, retain and grow its market share and increase its competitiveness in the airline industry. References Adler, N., & Smilowitz, K., 2007. Hub-and-spoke network alliances and mergers: Price-location competition in the airline industry. Transportation Research Part B: Methodological, Vol. 41, No. 4, pp. 394-409. Air Asia, 2015. The Beginner's Guide to AirAsia : Hi, We're AirAsia!, Retrieved on 18th September from http://www.airasia.com/ot/en/about-us/hi-we-are-airasia.page Air Asia 2015b. 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