Marketing environment consists of the actors and forces outside marketing that affect an organization’s ability to develop and maintain business with its targeted customers. The volatile change of marketing environment may offers opportunities and poses threats to a company depending how proactive they can adapt to it. Marketing environment is made up of:
Micro-environment close to the company that affect its ability to serve its customers. It consists of the company’s internal environment, suppliers, marketing intermediaries, customers, competitors, and publics. (Kotler, P. et al, 1999, pp.146-174).
Macro environment consists of non specific aspects in the organization’s surroundings that have the potential impact on the organization’s strategies. There are demographic forces, economic factors, natural, technological, political, and sociocultural factors.
The purpose of this paper is to conduct an environment analysis and critically evaluate the major forces that may affect AirAsia’s international business operations.
AirAsia Berhad, a company based in Malaysia, is the current leading low cost carrier in Southeast Asia. The company has since re-launched the low cost carrier business model following the acquisition of the company by Tune Air in December 2001. The company begins its operation with two planes serving five destinations. Now it operates a fleet of 90 aircraft and flies more than 60 destinations from hubs in Malaysia, Thailand and Indonesia. With its slogan – Now everyone can fly, the company’s vision is to serve the 3 billion people who are currently underserved with poor connectivity and high fares and its aim is to be the largest low cost airline in Asia.
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The key business strategy for the company is to consistently delivering low fares to its customers and attaining low operation costs through proving no frills, high aircraft utilization, streamlining their operations processes, and focus on lean distribution system. As shown in the table 1.1, the company’s financial performance result for the last few years has proven by its own. AirAsia has received numerous awards from various recognized association bodies. In year 2009, the company has been chosen as the world’s best low-cost airline which awarded by a London based aviation consultancy Skytrax. In the same year, The Centre for Asia-Pacific Aviation for Excellence (Formerly named as CAPA) has picked the company as its Airline of the year.
Key Environment Forces Affecting Its Business
There are number of new emerging competitors like Tiger Air, and Firefly who started the similar low cost carrier business after the succession of AirAsia. Firefly, wholly owned by MAS, has recently expanding their hubs and actively put in additional routes which similar to AirAsia’s route may potentially slash the company’s market share in low cost segment. Secondly, the competitive advantage of MAS and Firefly should not be underestimated as they had a full suite of products (Full service or low cost) to offer every market segment, which AirAsia don’t have currently.
4.0 PEST analysis
4.0.1 GDP growth and ASEAN Populations
An analysis conducted and revealed that residents of countries with low per capita levels of gross domestic product (“GDP”) tend to travel less as they are not affordable for a full service air transportation fees. As shown under table 1.3 & 1.4, those low income countries like India, Indonesia, and China, with enormous populations representing high potential share market for low cost carrier airline business model to enter. The rapid growth of economic in ASEAN countries has also boosted the income of household significantly and allowing the residents of these countries to spend on leisure travel through low fares airline like AirAsia.
4.0.2 Fuel prices
Where high oil prices are usually one of the main key factors that affect the airline business as fuel represents a biggest share of operating budgets. For instance, when the oil prices shot to the record high of USD175 per barrel in year 2008, there are number of airline companies has no alternate way but to trimming their service on their marginal routes, cutting jobs and rolling out more service charges to juggle the company’s balance sheet. Table 1.2 has shown clearly elaborate the effect of oil prices affect the airline company’s net income or loss.
4.0.3 Liberalization of the Aviation Industry
The recent liberalization of Southeast Asia’s skies agreements has opened the door for those new emergence low cost carriers to expand additional routes to different locations. This has resulted those national flag carriers to change their strategic to stay competitive as the decades of monopolistic business has over. For instance, the Malaysia-Singapore route which has been dominated by Singapore Airlines (SIA) and Malaysia Airlines (MAS) for over 35 years, constitute one of the most expensive routes in the world for a fifty five minutes flight has recently opened to new competition like AirAsia whom now offer fares for a quarter from the initial amount.
4.0.4 On line Booking
Emerging technology and tighter security features has given certain level of comfort for consumers to execute transaction safely in internet. In view of Internet is the least expensive distribution channel, AirAsia has constantly encouraged its customer to do online reservation by offering the lowest fares and free seats campaign through its website. In additional to that, AirAsia embarked a fully ticketless system which has significantly saved on its administrative costs and related expenses.
Interrelationship Between macro forces and driver for change
In view of the Southeast Asia has emerged strongly from the global financial crisis, AirAsia’s business is expecting to grow steadily in the coming five years. The average economic growth rate of these six countries in the region (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) is projected to reach 7.3% in 2010, compared to 1.3% in 2009. (http://www.oecd.org/dataoecd/50/20/46338931.pdf). Similarly, air traffic percentage would likely to increase gradually as Real GDP growth in six Southeast Asian countries is projected to achieve 6.0% per year on average in year 2011 to 2015.
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The fiscal stimulus measure through quantitative easing by United States Federal Reserve has causes volatile shift of global liquidity and leads to a liquidity built up in the domestic financial system in developing country. The depreciation in US dollar currency and low demand in western country would further dampen the export dominant country in Asia. Inflation hike and government’s subsidy cut in Malaysia would likely to hit the local airline business badly if the policymaker doesn’t put in appropriate control measures.
In considering of uncertainty over fuel prices in market and the entire unfavorable macro environment, keeping operating costs low is always the key priority for AirAsia to stay competitive. The company plans to phase out its 14 Boeing B737 aircraft by the end of 2010 and replace with the brand new and higher capacity Airbus A320 aircraft. This type of aircraft provides better fuel efficiency and lower down the maintenance cost. Having a single and standard type of aircraft model through its fleet provides greater productivity and reduces its inventory costs.
AirAsia has acknowledged that passenger seat revenue alone not going to be enough to sustain and grow the business. Thus, the company started to maximize its revenue through growing their ancillary services like imposed supersize baggage charges, serving the in-flight food choices under the brand AirAsia Café, utilizing the excess belly space to transport cargo such as apparel, food, electronics and documents door to door. Its ancillary products and services have generated revenue of RM413 million for the company in 2009.
Another key major forces are those newly arose competitors in the similar field of low cost carrier model has threatening the company’s business. Besides keeping lower operation costs, differentiation its services against its competitor help the company to stay in a competitive advantage. For instance, AirAsia provide additional service like SMS alert to passengers mobile in the event of flight delay.
With the recent forming alliance with budget airline Jetstar will greatly benefit both companies. The two airlines will cooperate closely to reduce costs which lead to cheaper airfares. Sharing of ground operations and aircraft parts, as well as joint purchasing aircraft will eventually help both companies to save hundreds of million dollars.
In conclusion, price war is unavoidable as in view of the stiff competition in low cost carrier and uncertainty of the current global economy. Merger and acquisition between airline companies will eventually help the company to stay stronger and achieved economic of scales. Continuously keeping lowest operating costs in the airline business and focusing on differentiation services
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