Strategic Management Analysis of Airasia - Case Study Example

STRATEGIC MANAGEMENT ANALYSIS: AIRASIA By Student’s Name Code + Course Name Professor’s Name University Cite, State Date Introduction The current state of air industry continues to experience intensive levels of competition from other major establishments within the sector. With the creation of the airline industry, the hurdles attributed to conventional way of transportation has been overcome as the aspect of globalisation being accelerated to greater degrees while people’s views on matters distance and time have been significantly improved to fit with their respective needs. It is noted that the airline industry has not only experienced intensive transformation especially to the manner for which society is conducted but also, through a number of substantial uncertainties. In essence, recent research surveys indicate that the sector has been attributed to uncertain business undertakings as well as costly failures (Adler, 2011). The risk status of the industry is highly linked to factors like the ever-fluctuating fuel prices, growing customer expectations as well as other external factors that the sector has no direct control over hence going far lengths to affect the level of demand for air travels. Airline competition has continued to increase tenfold over the years due to ever-increasing of the number of carriers that solely operates on a low-cost strategy (LCS) (Barrett, 2004). Whenever faced with intense competition, such organisations like AirAsia’s capacity to survive and thus, succeed into the future highly depends with the manner for which the firm can easily comprehend the needs of its customer-base and the speed at which it can alter is existing strategies to fit in with these new needs. The current needs of the passengers continue to change as they search for airlines that offer combined high quality services and low-cost fees. To conform to this new level of customer needs, airlines have come to realise that they must shift from a single generic strategy and employ a hybrid one that might portray leadership/differentiation strategies, which is being defines as the new world carrier strategy (Barrett, 2004). AirAsia Current Strategic Approach Just like any other airline industry operating within the greater Asian region, AirAsia, at the moment, operates on a low-cost strategy (Lawson, 2005). The success of the model in many of the airlines within the overall sector lies in the fact that it has successfully penetrated the market share previously held by the full-service carriers as well as their relative capacity to stimulate and attract an additional customer demand. Potential passengers who could not afford air travels in the past could now do so due to the low cost fees (Lawson, 2005). Low cost strategy has continued to succeed even in the current competitive environment as a result of effective and efficient management of costs. In fact, with a robust focus directed towards costs, low cost business strategies ensured to push out possible avoidable costs out of its entire operational system (Lawson, 2005). For instance, AirAsia has continued to emphasis on point-to-point flights in order guarantee of eliminating activities involved with the movement of passenger bags between connecting flights, which has accomplished greater airplane usage that facilitates a much faster and effective turnaround times. AirAsia was established to provide low cost domestic airline with an intention of making it possible for each and every person to conduct air travelling whenever possible (AirAsia, 2010). The fundamental goal of this low cost strategy was meant to offer the air services at relatively lower prices in comparison to the competitor’s as a way of ensuring higher level of efficiencies as well as sustaining simplicity. The cost leadership strategy is fairly similar to one adopted by the Southwest airlines with slight improvements that are aimed at reflecting the needs of the locals Asians (Goldman, 1997). Similar to other airlines, AirAsia has ensured to operate under a high aircraft utilisation model, employs secondary low-cost airports while at the same time ensuring to sustain flights under a point-to-point approach. The airline remains a top notch air service provider within the industry because it relies so much on allowing cheaper and affordable prices that fairly complements its courteous services that later translates to high customer satisfaction( O’Connell & Williams, 2005). Prior to the establishment of AirAsia, the region had fewer number of airlines operating under the low cost strategy since it was presumed the model, which was in fact successful in both the US and Europe, could not be replicated in Asia as a whole. This postulation was entirely focused on a poor number of secondary airports within the region as well as stringent regulatory frameworks that prevented easier and effective penetration into international markets (Goldman, 1997). Despite their being other LCS-based airlines like Citilink and JAL Express, they did not have significant levels of impacts as was expected. AirAsia, through its objective to succeed in the industry, adopted and also created distinctive solutions to numerous markets as well as regulatory framework barriers. A good example can be seen when the airline used the relaxation of the airline regulation within Thailand to promote activities of tourism (Goldman, 1997). Given that it registered its operations in Thailand, these facilitated avoiding of the home country’s regulations on international travels and thereby commence international flights. Presently, AirAsia provides both domestic and international based flights to more than 400 destinations across 25 countries. The growth of the company can largely be accredited with increased middle income class as well as a lack of formidable cost-competitive substitutes in regards to transportation options (Porter, 1985). This has further seen intensive improvements in the airline’s performance model despite the recently experienced global financial crisis. Fit Between the Company Strategy and Its Goals and Expectations The firm’s current CEO has continued to put much emphasis on a philosophy that integrates business growth with costs control mechanism. The firm’s management has continued to put stress on cost-efficient and profitable operations as a way of ensuring that it accomplishes its expectations of creating and sustaining values. It is expected that the costs that fail to add any possible value to the overall activities of the firm should be contained and eventually scrapped-off from the entire system as a whole (Dell'Era &Verganti, 2010). Subsequently, there is a higher possibility of the company to ensure cost reduction in its operations in order to cut down on possible competition. The firm can make efforts to ensure efficiencies as a perfect way of reducing the existing level of cost and also decrease their fare prices in comparison to other airplane companies (Dell'Era &Verganti, 2010). The demand for low cost strategy airlines is expected to grow and develop in the future. In consequence, the industry attractiveness as well as profitability is deemed to attract potential complete services as a way of adding value that would effectively offset rivalry within the industry as a whole. To make sure that AirAsia sustains its existing competitive advantage into the future especially in such markets as Thailand and Malaysia, it needs to leverage its competency level in developing cost advantages across the numerous value chains in existence (Porter, 1985). Notwithstanding, the airline’s decision to employ the low cost strategy is directly related to its expectations of creating and sustaining a successful business line in relation to such aspects as the treatment of its employees, culture as well as the manner for which the company is branded and marketed to the entire public as a whole (Dell'Era &Verganti, 2010). Each of these aspects is discussed as below; First, the airline has ensured to provide low cost services since it fairly comprehends the value of its entire workforce. The company recognises the importance of sustaining their human capital hence remunerates them in a competitive manner even though it operates a low cost model. Their employees remain to be highly satisfied with intense morale. Secondly, the company operates under a distinctive low cost strategy that fairly promotes its cultural platforms. AirAsia sustains an operational culture that is focused on promoting innovativeness, openness as a well as a never say-die attitude (Ahmad, 2010). The culture complements the airline’s commitment to executing simplified work structures as well as transparent performance management activities that is incorporated with employee empowerment. Thirdly, the airline’s unique low cost strategy is underpinned by the manner for which it ensures its branding and marketing activities. The company maintains different social platforms that serve to get feed backs from customers as well as in other modes of networking activities. The capacity of the airline to ensure that it provides almost instant feedbacks through Tweeter has ensured that most of its customer base remain satisfied at all times. In regards to AirAsia’s brand communication, the unique strategy make sure that it attracts lost of public attention and image as a way of creating and sustaining maximum level of awareness from all corners of the world (Pultorak, 2004). Following this line of reasoning, the airline can effectively cement its current market position and as a “people’s airline” by ensuring that most of the sources for its competitive advantage are fairly incorporated with the low cost strategy operational aspects like ensuring to maintain a standardised fleet as well as high aircraft utilisation that fairly complements with the overall performance management process. Strategic Plan for AirAsia Future Businesses Given the fact that the airline operates under a low cost strategy model and that the firm clearly seeks to maintain its number one position within this competitive industry, AirAsia is expected to formulate and implement different extensive strategies that would ensure that it provides low cost fares (Kim & Mauborgne, 2005). It is important to note that the airline enjoys a management team that is deemed to be reliable and effective in strategy formulation and execution. For instance, the management of the airline is credited with the blending of Ryan air’s operational strategy as well as the Southwest’s people strategy that conforms with prioritising the employees. Some of the fairest strategies that AirAsia can formulate and implement to ensure future success are discussed as follows; First, the airline should make sure to optimise on its IT-related sectors as well as implementing E-commerce within the overall business function. Presently, the notion of E-commerce has become an effective and reliable business tool as well as fundamental strategic management approach that facilitate the selling of commodities and services as well as in advertising (Kim & Mauborgne, 2005). The tool acts to minimise the expected level of expenses while at the same time improves product forms, which translates to high profitability. E-commerce has continued to alter the way operational activities are executed in modern business environments hence it is able to ensure success to the Airplane firm in a way that ensure their effectiveness and efficiency in business operations (Kim & Mauborgne, 2005). In recent times, AirAsia has made stringent efforts to implement E-commerce while maximising their IT utilisation capacity in a way that ensures effectiveness and efficiency thus making it possible to maintain the top position in low cost carrier business framework (Kim & Mauborgne, 2005). To maximise their IT infrastructure, AirAsia ought to implement current informational technology like yield management system. This yield management system is fairly utilised in the process of revenue management while at the same time puts emphasis on customers’ behaviours as a way of maximising revenues for the airline as a whole (Rouse, Maguire, & Harrison, 2010). Using this IT system, AirAsia is bound to realise the level of operating costs and supports it to optimise on its prices as well as allocate capacity to maximise the expected revenues in the future. The optimisation should be done in two distinctive models that include; Through seat capacity so that the available seats are made available to maximise revenues. This should be affected at different prices at different points in time. For instance, bookings done earlier should be charged less in comparison to one done later (Rouse, Maguire, & Harrison, 2010). Through route, revenues will be optimised by way of altering fair prices for different destinations, which have demand in comparison to others with lesser demand (Rouse, Maguire, & Harrison, 2010). In consequence, the perfect way is to effectively employ the two options in order for both seats and routes are priced distinctively for all the flights involved (Rouse, Maguire, & Harrison, 2010). Second, the airline can resolve its current issues that it experiences within the lowest carriers competition model through improving operation effectiveness and outstanding efficiency as well. To make sure that this strategic plan is successfully formulated and implemented, AirAsia should take strides to shift away from the existing traditional business model into modern business operations through implementation of E-commerce and maximisation of the overall IT infrastructure within the entire business operations (Kho & Aruan, et al, 2005). It is important to understand that the implementation of E-commerce can help eliminate the cost of travel agents while at the same time also lessen the ticketing paper costs. The two options involved with this include; AirAsia embarking on a journey of selecting distinctive routes by way of altering their respective prices. Through reduction of costs by using maintenance management, which would help the airline to save lots of maintenance costs that most of the times contributes to at least 9 per cent of the total cost of an airline. Third, the strategic plan can involve implementation of outsourcing arrangement in regards to certain sections of overall business operation. The decision on how well to acquire the overall system, AirAsia can opt to conduct in-house development or even going forward with outsourcing plans, which attracts numerous levels of benefits that include less costs, high degree of competency levels and also a competitive advantage over other LCC industry airlines (Cooper,1995). In my opinion, the strategic plans analysed above should all be formulated and implemented in a way that complements one another for efficiency and effectiveness of the entire operations. IT-based infrastructure should be emphasised at all times in order to guarantee the overall functioning of the strategic plan within the LCC industry. Conclusion The level of competition amongst airlines operating within the LCC is indeed tough and intense at the same time. Most of the airlines operating within this industry like AirAsia have always come forward to formulate and implement effective strategic plans to complement existing ones as a way of tackling competition at all cost. AirAsia has not been left in formulation of strategies that will help it accomplish goals and expectations hence guarantee a successful business operation. The company can solve the existing issues pertaining to operations by identification and implementation of a maximised IT as well as E-commerce in the entire air business operations. References List AirAsia 2010, Welcome to AirAsia. Retrieved on September 20th, 2015 from http://www.airasia.com/my/en/corporate/irstrategy.page Ahmad, R 2010, AirAsia: Indeed the Sky’s the Limit! Asian Journal of Management Cases, vol.7, no.7, pp.7-31. 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AirAsia- Strategic IT Initiative. Faculty of Economics and Commerce University of Melbourne: 8 Lawson, T. 2005, When being the lowest cost is not enough: Building a successful low-fare airline model in Asia, Journal of Air Transport Management, vol.24, pp.119-132 O’Connell, J. & Williams, G 2005, Passengers’ perceptions of low-cost airlines and full-service carriers: A case study involving Ryanair, Aer Lingus, AirAsia and Malaysian Airlines, Journal of Air Transport Management, vol. 11, no.4,pp. 259-272. Porter, M.E. 1985. “Competitive Strategy: Creating and Sustaining Superior Performance.” New York: The Free Press. Pultorak, D. 2004. Beyond Alignment. Business and IT Synchronization. Retrieved on September 20, 2015 from http://us.foxit.net/download/beyond_align.pdf Rouse, P., Maguire, W., & Harrison, J 2010 Revenue Management in Service Organisations, Business Expert Press, New York. 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