Air Asia Company’s Strategic Management and Analysis

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Macro-environment analysis

Macro environment refers to factors that relate to the firm but that are outside the control of the firm. Macro-environment analysis helps to pinpoint the threats and opportunities that a firm might be facing. The factors are political, economic, social-cultural, technological factors, legal factors, sustainability environment factors, demographic factors, and international factors (Sadler, 2003).

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Political factor

Order of Importance Issue +/- Effect on Growth
Political factors state the aviation regulations and acts that are needed by aviation companies such as Air Asia in order to do business. Politics influence the way of doing business, spending power of other airlines as well as customers do.
Political stability provides a safe market for a business that allows market growth. Political problems may cause business disruptions. On 25.11.2008, Political unrest in countries like Thailand blocked flights for a period of one week in Bangkok’s airport. The unrest affected Air Asia’s political analysis since it had opened franchises in Thailand in late 2007.
Positive effect on growth
The 2009 flu outbreak in the world affected Air Asia’s operations since many airports had to be closed down to contain the spread of the outbreak. Negative effect on growth
Air Asia has a 49% stake in Thai Air Asia, where one individual is holding 1%. The other 50% is held by Shin Corp, a firm owned by Thailand prime minister Thaksin Shinawatra. The company has a strong financial background, synergy in telecommunications and information technology that supports Air Asia’s mobile phone and internet booking. Positive effect on growth
The government of Malaysia helped Air Asia establish itself in the year 2001 to boost the underutilized Kuala Lumpur International Airport. Air Asia flights are meant to be a transport hub in Singapore. Positive effect on growth
The Singapore government rejected Air Asia’s idea of having flights from Johor. The idea of Air Asia was to attract passengers through the usage of buses to the city. The government refused to approve a bus link for Air Asia since the idea was not in the best national interests of Singapore. Negative effect on growth
Overall Rating: BALANCED

Economic factor

Order of Importance Issue +/- Effect on Growth
  • The economic recession of 2008 hit all industries in the world. However, for Air Asia, it was business as usual, as it managed a 148% increase in operating profits. The company made a profit in times of slowdown due to the low cost of fares, which most passengers chose. Air Asia is the lowest cost carrier, and it has a wide route of connectivity with a very large customer base.
Positive effect on growth
  • Air Asia has adopted cost leadership by the use of efficiency and effectiveness. Its cost advantage has aligned it as the lowest airline in Asia.
Positive effect on growth
  • Effective management of fuel and the creation of employment is a major economic factor in the global credit crisis. Air Asia’s employment rates have increased over the years. This has the advantage of benefiting the financial performance of the firm by increasing operating profit margins and, at the same time reducing unemployment.
Positive effect on growth
  • Air Asia has the ability to expose countries it operates to new markets, which in turn leads to improvement of trade, business efficiency, boosting investment, and increasing the quality and number of growth sectors.
  • Most of the governments have raised taxes which affects the performance of Air Asia. When the government increases taxes, the additional cost is passed on to consumers of the air ticket. As a result, the firm may be forced to reduce its operational costs by cutting down on the number of employees.
Negative effect on growth
Overall Rating: NEGATIVE)

Socio-cultural factor

Order of Importance Issue +/- Effect on Growth
  • Air Asia operates in diversified regions in Asia, which are different from each other, and this allowed Air Asia to attract many passengers in Asia with different cultures and languages.
Positive effect
  • Religious pilgrimage, e.g., Hajj in Mecca for Muslims, Vatican for Christians, and Varanasi in India for Hindus, increase the operations of Air Asia.
Positive effect
  • Passenger’s perception- there has been an increase in ethnicity perception of those passengers using planes due to terrorism threats. It has created a negative image against people of particular races and religions.
Negative effect
  • Consumer security – if consumers feel insecure when using planes, they will avoid them, and this plunges Air Asia into a revenue crisis.
Negative effect
Overall Rating: BALANCED

Technological factor

Order of Importance Issue +/- Effect on Growth
  • Internet and technological innovations – they reduce personal contact where passengers get their tickets and bookings online. Passengers access the websites of various companies online. This has led to increased competition since they have a lot of information to choose from.
Positive effect
  • Videoconferencing – has led to a reduction in air travel since people can communicate through teleconferencing in the comfort of their offices.
Negative effect
  • Improvement of airplane technology – Air Asia has invested in cost-efficient planes that have made it possible to be the lowest cost carrier.
Positive effect
  • Safety – it has led to trust among passengers in air travel. This has helped raise the demand for Air Asia services.
Positive effect
Overall Rating: POSITIVE

Legal factor

Order of Importance Issue +/- Effect on Growth
  • Liberalization – The aviation industry has been liberalized. This has attracted so many players in the market.
Negative effect
  • State aid – some of the companies receive state aid, and this hampers the spirit of competition.
Negative effect
  • Airport ownership – ownership of major airports is left to the government due to legal factors.
Negative effect
  • Passenger rights – passengers cannot pass countries without proper legal documents.
Negative effect
Overall Rating: NEGATIVE

Sustainable Environmental factor

Order of Importance Issue +/- Effect on Growth
  • Carbon dioxide emissions- Air Asia has been required to improve its carbon dioxide efficiency.
Negative effect
  • Fuel taxes and emission levies – these levies have been introduced in the airline industry to help prevent excessive emission of poisonous gases.
Negative effect
Overall Rating: NEGATIVE

International factor

Order of Importance Issue +/- Effect on Growth
  • Entry into the international market by many players
Negative effect
  • Barriers to entry in some countries
Negative effect
  • The requirement to fulfill international standards
Negative effect
  • Distance factor and fear of terrorism
Negative effect
Overall Rating: NEGATIVE

Industry environment analysis

The threat of new entrants

Factors (affecting the threat of new entrants) Analysis Threat Rating of New Entrants
High barriers High barriers block competitors from entering the airline industry. The threat depends on access to credit. It is important for firms to have frequent flights and an established brand name.
Having better slots in the airport It lowers the threat of new entrants. New firms cannot afford flights from popular airports; thus, they start from small airports.
Economies of scale It is achieved through low costs structure, which reduces prices and brings in demand which increases the load factors, thus reducing unit cost per passenger.
Overall Rating: MEDIUM

Bargaining power of suppliers

Factors (affecting the bargaining power of suppliers) Analysis Rating of Supplier Power
Fuel The price of fuel depends on the carrier’s efficiency. Planes consume a lot of fuel during taking off and landing; thus short distance airlines have lower cost-efficiency
Employees The company has to pay pilots, flight attendants, baggage handlers, and customer relations officers.
Labor Employees join labor unions that bargain on their behalf.
Competition Completion among the suppliers of airplanes such as Boeing and Airbus stabilizes and limits competition.
HIGH

Bargaining power of buyers

Factors (affecting the bargaining power of buyers) Analysis Rating of Buyer Power
Internet It has an effect on the accessibility of information to buyers. Buyers are able to compare the different prices of airlines. The information gives information about a particular route. Because of this, the bargaining power of buyers is high as far as cheap competitors exist. The price of agents also decreases due to internet competition.
MEDIUM

The intensity of industry rivalry

Factors (affecting the intensity of industry rivalry) Analysis Rating of Industry Rivalry
Competition rivalry Firms must understand the industry they operate in and the strengths of the variables. Thus competition occurs due to many low-cost carriers. Competition leads to low returns, which makes them vulnerable in times of economic slowdown. In order to make profits and survive, airlines must have unique business models. Competition occurs between low-cost carriers or when a regular airline wants to enter the low-cost sector.
HIGH

Power of substitutes

Factors (affecting the power of substitutes) Analysis Threat Rating of Substitutes
Forces of substitutes Companies need to understand the price differences between their own products and the substitute products and the ease of passengers to use substitute products.
Overall Rating: LOW

Internal Analysis

Tangible Resources
  • 34 Boeing aircraft
  • 20 airbus
  • Shares worth US$226 MILLION
Intangible Resources
  • Goodwill
  • patents
  • Strong Brand Name
Capabilities
  • Expansion into new markets
  • Increasing its existing flights
  • Attracting new customers
  • Maintaining the existing customers

VRIO Test

Potential Strategic Capability Valuable? Rare? Costly to imitate? Can an organization exploit now?
Infrastructure Valuable Rare Costly to imitate The organization can exploit it now
Technology development Valuable Not rare Not easy to imitate Can be exploited now.
Procurement Valuable Rare Costly to imitate can be exploited now.

Gap Analysis

Internal gap analysis-business strategy gaps

The trend which the answer is “mismatch” shows a gap in the management structure. Trends whose answer is “match” indicates a good internal performance with respect to external performance.

How does the strategy ‘fit’ with the major trends projected for the environment?
Trend Date of impact Business strategy match/mismatch
Air Asia has a written safety policy signed by the CEO. Start of every financial year Match
An audit carried out by independent auditors. End of every financial year. Match
Are processes in place to measure the performance of the company’s management system? End of each year Match
Is there a comprehensive Emergency Response Plan? At the start of every financial year. Matches external
Does the company measure performance in relation to other companies in the industry? At the end of each financial year. Match
Do the employees have a Collective Bargaining Agreement? Start of the financial year Match
Is there a formal process to tie all aspects of the operation (e.g., the management of operations and technical systems, finance, human resources) together so that profit is linked to business performance? Start of every financial year Match

Industry environment business strategy gaps

Industry environment element Opportunity or threat Effect on industry Business strategy
profitability consistency or inconsistency
Suppliers Opportunity it increases the profitability consistent
Buyers Opportunity they increase profitability consistent
Substitutes Threat reduce profitability inconsistent
Threat of new entrants Threat reduce profitability inconsistent
Industry rivalry Opportunity increase profitability consistent

Key competitor-business strategy gaps

How well are major competitors performing?
Competitor Financial performance Market position Technological performance Service performance Our relative position
Tiger Airways good 1 advanced Good service provision better
Ryanair good 2 advanced Good service provision Below us
Virgin Blue good 3 advanced Good service provision Below us
Cathay Pacific Airlines good 4 advanced Good service provision Below us

Current Strategy

Air Asia’s current strategy has adopted information technology. This involves:

  • Yield management system – this is to anticipate the behavior of customers in order to increase revenue. This is through various categories of seats that have different prices and through the route where the firm aims at reducing prices for routes with high demand.
  • Computer Reservation System – a web-based inventory and reservation system that includes call center, internet, and airport control functionality. The system allows Air Asia to satisfy the needs of implementing a low-cost business model.
  • Enterprise Resource Planning (ERP) – The firm has an ERP system powered by Microsoft Business Solution. The ERP enables the firm to maintain process integrity and reduce financial processing time.

Business Strategy

Air Asia’s business strategy was to have a low-cost airline.

Brand strategy

Air Asia is a brand for low-cost carriers. It targets people who want affordable travel rates, and it defines its business as low cost and no-frills airline. The company changed its logo recently to suit itself in the market and maintain its market niche. The tagline for Air Asia has broadly incorporated its brand extension.

Corporate Social Responsibility (CSR)

Air Asia upgraded their fleet as part of CSR to improve fuel efficiency; thus, they are environmentally friendly. The other CSR is that the firm was the first to initiate equal employment opportunities by becoming the first airline to employ a female pilot. Air Asia also helps people in times of natural disasters, such as when they collaborated with UNICEF to raise $128 Million to help people affected by the earthquake in Haiti. Therefore, CSR in Air Asia focuses on the development of skilled and responsible citizens, gender neutrality, and creating a meritocracy (Campbell, 2003).

International strategy

Air Asia’s international strategy is to offer international service. It started flying from Kuala Lumpur to Thai in January 2004, and in 2005, it flew to Indonesia. The firm also expects to fly to China and India. The firm has plans to fly to Bangkok, Kota Kinabalu, Guilin, and Shenzhen.

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Competitive Strategy

Cost Leadership Strategy

Air Asia is one of the low-cost airlines in Asia in the aviation industry. The firm offers its services below those of competitors to gain a market share and improve its profits.

Differentiation Strategy

The firm has been able to differentiate its products by providing fares for various classes of passengers. It has also concentrated in the low market thus is able to provide its services easily. The value created because of low prices adds a premium to the firm.

Focus Strategy

The focus segment concentrates on low-income earners and people from all occupations.

Recommendation

The firm is recommended to start business operations on other continents since this will increase its revenue base. It is also recommended that, since the firm is an equal opportunity employee, it should employ more women in the pilot team to increase the number of females.

References

Campbell, D. (New York). Business Strategy: An Introduction. 2011: Palgrave MacMillan.

Sadler, P. (2003). Strategic Management. Chicago: Kogan Page Publishers.

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BusinessEssay. (2021) 'Air Asia Company's Strategic Management and Analysis'. 30 December.

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BusinessEssay. 2021. "Air Asia Company's Strategic Management and Analysis." December 30, 2021. https://business-essay.com/air-asia-companys-strategic-management-and-analysis/.

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