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Value chain analysis at air asia

2086 words (8 pages) Essay in Management

5/12/16 Management Reference this

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Air Asia is the second Malaysian national airline which provides a totally different types of service called low cost no frills. Their vision is to provide affordable price to all worldwide travellers with minimum in-flight service.thier price is slightly lower than to any other full service airlines. Before 2001 Air Asia fails to capture market or attract new customer due to its poor operation against the full fledge service given by Malaysian airlines which was supported by Malaysian government. Turning point of Air Asia was in 2001 when this loss making company bought by Tony Fernandez. Air Asia re-launched in Malaysia in late Air Asia re-launched in Malaysia in late 2001, with low cost domestic airlines.

Value Chain Analysis:


The primary activities in Porter’s Value Chain are as follows


As inbound logistics involves different categories in air line industry for example how to schedule flights, keeping an eye on their competitors that what strategy they are adopting how to sustain in market, and how to cut off their price as they manage fuel efficiency by purchasing it advance when prices are low, and how to plan routes as they mostly plan short routes so that their costs are low.


As air Asia mostly uses their operations through online as their ticketing process is totally online and customer can get their tickets book online and they can also print their boarding card from their homes, Air Asia uses general electric engine for their customer safety as customers are the main preference of the company.


Air Asia has a strong brand name, now days marketing have a significant impact on any organizations sales, so Air Asia do advertisement by sponsoring “The amazing race”, and famous Manchester untied (mu) football club, painting some of it’s aircraft with club colours and sports star, and most importantly chief executive Fernandes himself wear Air Asia official red cap and T shirt in almost every official function.


Now a days retaining a customer is a difficult task so to over come this Air Asia provide different type of services to it’s customer like if flight is delayed by more then three hours then u$ 61 e-gift voucher is given, passenger can also pre-book their checked baggage for a lower rate, and customers can also online book hotels, hostels, rent a car and medical services.


The value chain analysis has some$ support activities as well. The support activities that Air Asia has to follow in order to keep their business clean and operational are;


Air Asia has a strong firm infrastructure they have evolved from a classic lcc into an integrated service provider, they are focusing towards their goals, they are providing the cheapest fare, they are exploring new markets, and decision making process is simple.


Air Asia hire capable workers ,and they assign multi skilled people so that they can over come their price in term of human resource and can maintain their company mission of low price airline , and they also compensate their employees in terms of performance.


Air Asia uses different type of technology to minimize its cost and to make their operation easy and efficient, they are using yield management system (YMS) which takes into account the operating cost and expected revenues, and they also use computer reservation system (CRS) as it is web-based reservation and inventory system as it is a direct sale engine which eliminates the middle man, and they also implemented enterprise resource planning system (ERP) which helps to save the time at month end closing, and speed up reporting and data retrieval processes.

Value Chain Analysis Diagram:


IT Problem:

Customer are facing problem regarding booking tickets online, because their system are not up to date if the flight delay or cancelled they don’t have any system showing intimation to the customers. Some time cards are not accepted by the system for payment, this may create trouble for the passenger to purchase.

Government intervention:

With growing demands of low cost carrier, Air Asia started penetrating more routes and tie up with more airports for Example In Singapore, Air Asia wanted to start the flights from the southern state of Johor, keeping in mind to attract the passengers by providing free bus service to the city state. Singapore government did not allow providing bus link to Air Asia by saying it was not her national interest. Government fears to lose the changi airport business, if Air Asia came with that service, this suffer a huge loss to Air Asia.

Operating cost increased:-

Being a low cost carrier, there is always a threat either from other LCC or the full service airlines to compete each other, in order to beat the rivals, Air Asia came up with value added service to the customers like internet check in service, with this one can enjoy printing their own boarding pass online, Air Asia not only give low cost tickets but also provide other financial services like travel insurance, holiday packages, booking services for hotels, car rental, and Citibank -Air Asia credit card. To maintain this type of services required huge amount. This increased the operating cost by producing value added service

High Labour cost:-

With increase in demand of low cost carrier, and expansion of air route, there is always need to recruit new member too give better service for smooth operation, it is now very difficult to hire people with low cost, payment should varies differ to different industries. Being a low cost carrier, profit margin is only 30% of Air Asia

Maintenance Hub:

As Air Asia does not have its own maintenance and repair facility, as by passage of time and increase in number of planes from 3 to 100 planes currently and about more 100 planes to received next year, so not having their proper maintenance hub it cost a lot to the company .

Limited Human Resource:

As to maintain it low cost competitive advantage Air Asia goes with limited human resources so if some irregular situation comes then it is difficult to handle the situation.

Flight Delay:

As when their flights are delayed then there is no proper channel to communicate to the customer or customer is not inform earlier

Fuel Prices:

Due to rising in fuel prices, the air line industry effects a lot in that case the operational activities of Air Asia also adversely effected.


Air Asia is focusing on low cost and no frills to be on right direction with fulfilling the organization goals. To compete with the market challenges and to face them following are some of the recommendations to enhance the operational activities.

New IT System Implementation:

The company should implement IT system strongly because the business of Air Asia is heavily depending on internet, therefore they should apply Advance Planning and Scheduling system (APS). As APS system is capable in optimising operational planning, scheduling supplier portal, inventory planning, and demand per costing, maintenance management and route profitability which will help them to compete in the low cost market.

Staff Training:

Air Asia is hiring multi skill people, In case of difficult situation they should train their staff, Human Resource Development should take necessary steps by updating their employees through on job training as it will cost effective.

Joint venture with different low cost airlines:

As air Asia is a low cost air line so to maintain and to keep their customer stick with them they should go for alliances with different airlines so that they can get access to different routes, and their cost should be low as well as there are different companies like virgin blue who want to extend service who want to extend service to south east Asia, therefore air Asia can have a joint venture with them.

Self Maintenance :

As to maintain the mission of the Air Asia as a low cost carrier and no frill, it is has to focus from different aspects, maintenance and overhauling of the aircraft is the major

Operating activity, for that Air Asia needs its own hub and maintenance staff rather relying on outsourcing. Initially it is costly but in the long run this investment would be feasible for the airline.

Flight delay:

To satisfying the customer is the basic importance for the service industry, if the flight is cancel or delayed the management should inform passenger on time or apologize by explaining the valid reason.

Frequent flyer programme:

Loyalty programme should be introduce for the passengers who frequently flying with Air Asia in order to retain them and airline should involve the loyal customer with the new upcoming offers.

Additional Services:

Air Asia should introduce member lounge to treat their frequent passengers and they should provide extra entertainment through nominal charges to make better impact of airline. Air Asia also has to start in flight entertainment during short haul flights on customer demand.


Strength: –

They have strong relationship with government and political leaders to operate smooth function. They have good management team who work efficiently with strong utilisation of IT, so that each and every customer can book tickets online by choosing easy method. Air Asia penetrates more and more market because of their low cost mentality, this help them to become low cost leader in Asia pacific region. With strong working relationship with government bodies can help them to work smoothly in the country For example: working with Thai Prime Minister Mr.Thaksin Shinawatra who holds 50% stake in the company help Air Asia to capture good market in Thailand.

Weakness: –

Air Asia don’t have their own maintenance hub, initially they started for few planes to maintain. By the passage of time, they have come up with 100 planes, but in future they are expecting another 100 planes. So they will be facing to maintain all the planes at a time. It is one of the big disadvantages not to have their own maintenance hub. Second problem with Air Asia is one cannot change their, if it is delayed or get refund for the same and also charging more on baggage’s to cut the cost of fuel. Because of limited staff they cannot handle the problematic situation when arise. By providing low cost they fail to provide basic service to the customers in order to maintain the profit margin.


Explore more on Asian markets; there are Asian cities with population of more than 1 million which are middle class, so they are targeting more on middle class people. Joint venture with virgin blue group. This group want to extend their service to South East Asia, so Air Asia can have joint venture with virgin blue group to capture more markets with them. Increasing oil price which can be threat to all airline industry. But Air Asia doesn’t have their customers already enjoying low price irrespective oil price goes up or down. Due to increase in growing demand of Air Asia customers. Prospects generates for new routes for customers and more numbers of airport deals.

Threats: –

Some charges like Air departure, landing cost security charges are not in control of airlines operators. This threat is for all airlines but especially to those airlines who are keeping their rates very low. Full service airlines can enter any time by reducing their cost. Because profit margin of Air Asia is 30% which is very less as compare to any other full service airlines. Problem may occur due to heavily depend online sales, like disruption or any other fault can happen to system which may result directly on sales. There will be lack of confidence among customers due to terrorist attack, accident, government policy etc.

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