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AirAsia Berhad operates in the airlines industry providing air transportation services with a fleet of 90 aircraft as of December 31, 2011. Its success is mainly attributed to its cost efficient and effective operations which have enabled the business to become Asia’s leading low fare airline. AirAsia posted a 4.0% increase in first-quarter net profit ending 31 March at 167.97 million ringgit compared with 161.9 million in 2011. This business also posted a record quarter revenue of 1.17 billion ringgit which is and increase by 11% from 1.05 billion in the same quarter last year (TTR Weekly,2012).
Organization Position and Brand Strategy
AirAsia has observed a high level of commitment to its core brand positioning as the leader in low cost carrier in the region through “offering the lowest airfares at a profit” with the tagline that “Now Everyone Can Fly” (AirAsia,2007). AirAsia’s advertisements and promotional activities that are directed toward this initiative is visibly prominent in the increasingly competitive and crowded marketplace which allows the airlines to cut through the clutter and differentiate itself from other leading low cost carriers as well as the national carrier Malaysia Airlines. This strategy is encapsulated aptly by Fombrun affirming that “brands closely reflect the true value of a firm and is a source of competitive advantage” (Fombrun, 1996).
Current Environment and Operations
SWOT Analysis of AirAsia
· Comprehensive use of internet technology for its sales and marketing initiatives. Features of AirAsia.com include dominant red and white branding, multiple language selection, ease of use, discussion forums, communication centres etc.
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· Low operating cost model adopted throughout all services offered by the airline which include being a no frills airline, online reservation of flight and Go Holiday packages, self check-in etc.
· Strong capabilities due to their multi country positioning with travel hubs based in Malaysia and Indonesia.
· The relatively flat company structure of AirAsia offers great opportunities for employees to provide feedback to the organization.
· Strong and highly capable leaders in management including industry thought leaders and ex-government officials.
· Business is still in its growth phase with increasing number of purchases of Boeings and Airbus which enables expansion into more destinations and serving more customers since its inception.
· AirAsia’s service recovery standards has plenty of room for improvement. There is no set corporate policy for service recovery and staffs often lack the basic skills in dealing with recovery incidences.
· The airline and its range of services lacks in its customer orientation focus as seen with numerous customer complaints on AirAsia Online Reservation System complaints.
· On Flight Services may have resulted in some grievance amongst passengers especially those who also frequently travel via non low cost carriers.
· There is occasionally no upward communication with the management from the selected strategic partners with regards to customers experience or grievances on the online reservation system.
· Tapping the ‘For-the-First-Time-Flying” market segment of travellers. This customer profile is typically the younger Generation Y population which have higher propensity and acceptance of online packages and with limited budget for travel.
· New markets will be created through distinct customer segmentation i.e. sharper focus on customer segment especially for short haul routes e.g. price conscious customer and quality conscious customer.
· The airline industry sees the emerging of a new business model that is focused on the use of digital technology that permits a higher level of efficiency which leads to an even greater cost advantage (O’Connel and Williams,2005).
· Increasing price competition from other carriers.
· Increasing number of AirAsia Online Reservation complaints lodged up to the Ministry of Domestic Trade and Consumer Affairs and the Ministry of Tourism Malaysia (National Consumer Complaints Channel, 2012).
· Stiffer competition from full carriers such as Malaysia Airlines especially for non business passengers and short haul passengers.
· Government regulations to safeguard the National Carrier such as in restricting access to some routes.
A. How can AirAsia Use and Maintain its Strengths?
The relatively flat company structure of AirAsia offers great opportunities for employees to provide feedback to the organization. The management should continue to conducts regular team meetings with the employees as a channel to facilitate the upward communication in the organization.
B. How can AirAsia Improve its Weakness?
Lack of training and empowerment by the management leaves a lot of basic service issues which could be resolved easily by front line staff unresolved, escalating into unnecessary situations where service recovery is needed. Formal processes need to be in place in preparing for service failures.
As a leading low cost carrier in the region AirAsia has a clear understanding on customers’ expectations for quality of service. A lot of emphasis in the organization is made to create cost advantages in the value chain often not taking into account the impact it may have on the perception and expectations of the consumer. By conducting regular focused market research the company would be able to achieve a clearer understanding of customer’s expectations and their perception of the services and offers presented.
C. How can AirAsia Exploit its Opportunities?
Alignment of Demand and Capacity
The organization has a wide range of resources that is deployed during peak travel time to ensure that customer expectations are met. Flexible strategy is applied to allocate resources and personnel for attaining fluctuation in demand as well as expectations of future increase in demand.
D. How can AirAsia Mitigate its Threats?
Systematic Online Reservation System Design
AirAsia’s Computer Reservation System is designed as a translation of the organizations understanding of customer’s expectations however customer driven standards in the service designs is absent. End users have low involvement in the development process of the system design which sometimes leaves the customer with a less than desirable service. Redefining the service design to a more current framework would go a long way in determining the standards of customers and meeting consumer expectations.
The pricing policy is highly dynamic, with discount and promotions. Aligned with its mission statement, AirAsia’s business strategy is centered on cost leadership. Pricing strategies are structured to ensure that price is in line with its price sensitive target market. AirAsia should continue to build and sustain its competitive advantage by providing services including its simplistic online reservation system at a price that is simply lower than its competitors’ price while keeping customers expectations at a reasonable level.
PESTEL Analysis for AirAsia
· Malaysia continues to experience political uncertainty with wavering support to the ruling coalition party (Edwards,2002)
· Pressure by ASEAN nations to deregulate Indonesia’s Rp. 1 million Fiscal charge to all Indonesian citizens and expatriates when departing from the Republic of Indonesia. This regulation is implemented for both business and tourism travel (RSM Asia Pacific,2009)
· Increasing national tension between Indonesia and Malaysia with Malaysia being granted exploration rights to oil rich waters off the coast of Borneo.
· Terrorism attacks in many AirAsia destinations namely Bali and Thailand.
· Government policies and bilateral air travel agreements that tend to favor the national carrier Malaysia Airlines.
· In Malaysia, the pace of growth of the economy in the first quarter of 2012 moderated to 4.7 per cent (4Q11: 5.2%, 3Q11: 5.7%) (Malaysian Institute of Economic Research,2012). This rise in economic growth and income has changed the spending pattern of customer which has been encouraging for air travel.
· The Malaysian inflation rate registers at 3.2 percent which is a 1.7% increase over 2010 (Index Mundi, 2011)
· Malaysia ranks 20th for its ease of doing business out of a total of 181 economies surveyed in the World Ban Doing Business 2009 report.
· According to our new research report “Malaysian Tourism Industry Forecast to 2012”, international tourist arrivals in Malaysia will grow at a CAGR of around 8% during the forecast period (2011-2013) (Research and Markets,2010)
· Tourism receipts from overseas tourists are expected to rise at a CAGR of around 8% during the same period, thereby, surpassing RM 70 Billion (over US$ 22.4 Billion) by 2013 (Research and Markets, 2010).
· Inflation of fuel prices has been threatening the airline industry. Increase in fuel prices have been translated to the customer with an increase in fuel surcharge on ticket prices.
· AirAsia operates in Southeast Asia primarily and throughout the world in many countries and spans across many different languages and cultures.
· Southeast Asian countries have an armamentarium of cultures and religions. This means that the comprehension of local laws and rules is of utmost importance for example the provision of halal food as in-flight dining service.
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· The population of Asian middle class is estimated to reach greater proportions in the near future, thus creating a large market and huge opportunity for AirAsia in the region specifically.
· Greater emphasis and trend toward international travel for vacations, education and business in today’s society.
· A globalized economy will further drive the application of technology in business especially in the airlines industry which warrants AirAsia to implement a powerful strategic focus on the use of information technology.
· AirAsia has excellent utilization of Information Technology and this has been at the forefront of their promotional and brand building activities.
· Airlines are the second most dependent industry on information technologies within the US, the first being the financial industry (Butler,2002). Because of its dependence, airlines are quick to adopt new technologies to improve efficiencies that are expected to translate into cost savings.
· Airlines have used a variety of ticket distribution channels to maximize sales and profitability as seen in the case of AirAsia SMS Booking System.
· Airline reservation centre’s need to be sufficiently capable to cater to the needs of the rapidly expanding global airlines industry.
· The growing propensity of people embracing technology and internet usage in their purchase decisions and purchase transactions encourages further research and development in this avenue.
· The global revolution in new internet and mobile platform technologies has been creating new distribution and promotion channels for the airline.
· Aviation is in the front line of growing public awareness of the impact of man’s activity on the climate and concern over the measures that will need to be taken to avoid irreversible change to the climate.
· Market based options for combating climate change include charges, taxes and trading.
· Increase in awareness and regulations pertaining to carbon emission which threaten the airlines with hefty fines for violations.
· Carbon offsetting is a service offered by certain airlines in order to allow passengers to compensate for the carbon emissions generated by their flight thereby cancelling out negative impacts on climate (Polonsky et al, 2010).
· Air transport liberalization initiatives and Open Skies Agreements have significant positive economic effects on the economies of the nations involved and on the airline industry itself.
· By 2015, Southeast Asia will have open skies which offer an opportunity for AirAsia to maximize it routes and destinations (Polonsky et al, 2010).
· Policy stances of the countries vary. Some countries are currently very liberal, placing few limitations on international aviation.
The volatile macro environment of the airline industry both weights some challenges and merits some opportunities for AirAsia. In order to warrant success in this setting it is crucial that AirAsia responds judiciously to key challenges facing the organization and embraces any opportunities that could arise in the market (Viseras,2005). It is important for organization to analyze how these factors are changing and how they are likely to change in the future (Johnson,2009). Soaring fuel prices, unfavorable and tightly regulated bilateral air rights agreements and legal stances of global environmental laws are some of the challenges that exhort pressure on the airline. AirAsia approaches these challenges by continuously innovating to meet the rising challenges while still managing to keep its cost low across its value chain. AirAsia has been the front runner in embracing technology in its operations as a means to surmount the challenges the industry faces. Operational systems are designed to also take advantage of opportunities that presents itself. An evident example is the persistent revolution of its online booking system with the introduction of the first online booking system using the SMS platform to meet the current demands of the market.
It is natural for a commercial organization such as AirAsia to have such a diverse range of groups having vested interest in the organizations decision and activities. Policies and legislations from government bodies involving employees, funding, foreign investment, taxes, diplomatic relations just to name a few have a great influence on the organizations business processes and activities. Hence government agencies such as the Employees Provident Fund, Inland Revenue Board, National Bank, Ministry of Foreign Trade, and Ministry of Tourism have the same influence on the organization as shareholder. Travellers interest are relatively low in comparison to other stakeholders as their main concerns are low fares, safety, high quality service and expansive network of coverage. Slew of competitors in the market and price competitiveness of supplies compels a great amount of influence on business and operational decision for AirAsia.
AirAsia has progressively launched value added services into its airline one of which includes the online Computer Reservation System (CRS) and a key challenge for AirAsia in the context of the CRS is in managing service quality which has a direct relationship with customer satisfaction. This service represents the purchase of a seat on the airline through its official website AirAsia.com and combines the issue and delivery of the ticket into a single seamless operation which offers the convenience of a faster and more practical option for consumers. Several reports in mainstream media have seen that the level of acceptance for AirAsia’s CRS has increased however the statistics does not indicate the level of service quality having improved, for instance the malfunction, repeated error message during high traffic and promotional campaigns The e-ticket service quality in Malaysia as perceived by AirAsia customers is an issue of concern and therefore it is imperative for the organization to revisit its quality dimensions in terms if technology to ensure it meets the customers’ expectations. (Ahmad,2011). Functionality, efficiency, convenience and ease of use are strong indicators of customer satisfaction with online ticketing which the organization should pay close attention to. (Ho, 2008). The service blueprint for AirAsia’s CRS is illustrated in Appendix 1.
AirAsia competes in a highly competitive market. Competition exist both domestically and internationally. At present there is a high degree of competition in flights catering to the ASEAN region. Some of AirAsia’s competitors include Jetstar and Tiger Airways. These airlines share some similarities in their offerings and their operational processes and revenue generation from coverage in the ASEAN region makes up a substantial amount of their annual revenue. Secondly pricing structure of its offering is centered around the cost leader, AirAsia and thirdly these competitors are purely budget airlines and not national carriers. Service offered by these carriers are similar and almost undifferentiated resulting in competitive parity. In order to create a competitive advantage AirAsia must continuously finds ways to innovate the basic offering of the low cost carrier, an example would be the development of the user friendly online booking service using the mobile platform and reforme the undifferentiated online booking system.
Organization Vision, Mission and Values
AirAsia’s corporate vision is to be the lowest cost short haul airline in every market it serves in Asia, delivering strong organic growth through offering the lowest airfares at a profit and its strategy is built upon 6 pillars i.e. leanest cost structure, maximizing shareholders value, safety, passion for guests satisfaction, transparency and human capital development (AirAsia Berhad,2006). Closely aligned to its corporate vision is AirAsia’s mission statement which is to be the best company to work, to create a globally recognized ASEAN brand, to attain the lowest cost so that Everybody Can Fly with AirAsia and to maintain the highest quality product, embracing technology to reduce cost and enhance service levels (AirAsia Berhad,2007). The corporate values that AirAsia holds are to be efficient and prudent, maintain simplicity, safety and transparency (AirAsia, 2008).Therefore
AirAsia’s Computer Reservation Service
In tandem with its corporate vision, mission and values, AirAsia offers a host of value added services including the Computer Reservation System with the purpose of enhancing the AirAsia experience at the point of booking by offering a convenient and efficient online reservation service. The efficiency of this system needless to say supports and further drives a lean cost structure for the airline.
AirAsia Business Objectives
AirAsia’s business objectives if focused firmly on enhancing revenue and on the efficient management of the cost base. This creation of value for its shareholders flows directly from the value it delivers to customers (AirAsia, 2006)
AirAsia Business Goals
AirAsia has a firm commitment to be a truly Asian airline that operates an extensive route network, fosters economic prosperity, stimulates tourism and promotes stronger cultural integration thereby is poised to be the largest and youngest airline in the region.
AirAsia Business Model
AirAsia’s business model is focused on a low cost principle in that it operates in a lean, simple and efficient structure. The airline has employed an efficient use of Internet technology in a magnanimous way for its operational management of ticketing through the use of online ticket booking services. The airlines success is driven by passenger confidence and satisfaction with the no frills, hassle free and convenient way of travel and a key strategy to support this driver is its ‘Easy to Book, Easy to Pay, Easy to Fly’ approach adopted through its online ticket booking service. At present, AirAsia employs a Computer Reservation System (CRS) which is an integrated web based reservation and inventory system for this purpose. The CRS components include online bookings, schedules, payment systems, call centers, self check in and airport departure control amongst others which allows a seamless process for passengers from ticket booking to flight check in. It is imperative to note that AirAsia CRS satisfies the unique strategic position of the airline which is implementation a low cost business model which transforms the business process to efficiently streamline operations while keeping cost low. AirAsia’s online ticketing booking process is elaborated further in Appendix 2.
Conclusion and Recommendations
Referencing the above data that have been analyzed, the following recommendations are made for consideration in the context of AirAsia’s Online Computer Reservation System and encompass two aspects i.e. the outcome dimensions of efficiency and convenience as well as the process dimensions of technological functionality.
1. Alignment of Demand and Capacity
Improving the technical tools and system quality during peak booking time that will enhance the customer experience in terms of ease of use and response time.
2. Technical Assistance and Service Recovery
Ensuring competent and efficient technical assistance with staff that are equip and empowered to resolve basic service issues and failures.
3. Systematic Online Reservation Design
Due to the lack of customer driven standards in the service design, it will be crucial for AirAsia to continuously improve its framework to ensure the standards meet customer expectations.
4. Narrowing the Customer Gap
A clear understanding of customer expectations on the quality of service is imperative in assuring AirAsia is kept abreast of evolving customer expectation to its online reservation service therefore, regular focused market research to understand consumer perception and ensure a close alignment of service standards to meet these expectations.
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