Air Asia was founded in 1996 as Malaysia’s second airline. It had been beset by problems in the beginning, and failed to make profits. The company was founded as a full service regional airline, offering cheaper fare than main competitors in the Malaysian airlines
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Competitive Situation within Air Asia Company
According to the competitive situation in Malaysia, Air Asia had plans to expand their market outside the region. They participated in a number of joint ventures. These included: Thai Asia, Indonesia Air Asia, and Air Asia X. They were favored by the government through endorsement of Air Asia X. The government built the first low cost terminal in Kuala Lumpur International Airport in March 2006. Air Asia was causing competitive ripples, making Asia’s largest carriers-Singapore Airlines to announce low fare subsidiary. Singapore Airlines Deputy chairman, Lim Chin Beng, registered “value Air” intending to operate as Singapore’s third airline. Thai Airways international also announced its LFA (Low Fare Airlines) as a joint venture with another company. This provoked the Sri Lankan government to launch two low-cost airlines namely: Air South Asia and Mihin Lanka. Only Mihin Lanka succeeded to operate.
Air Asia should consider a global strategy to expand their circle of influence. Having established their brand as the best low cost airline, it shall be easy for them to gain trust. Africa can be their best place to venture into considering most travelers can’t afford to fly with the major carries. They should join strategic alliances with African airlines to gain popularity.
Internal Analysis of Air Asia Company
The internal functions of Air Asia have led to the development of Malaysia and the transport system. Air Asia’s revenue was driven by the visiting friends and relatives (VFR), as well as, small business travelers. They developed a market growth by lowering the cost of traveling. Traveling with Air Asia was cheaper than traveling by bus or car. The low fare charges promoted air travel and local travelers switched from sea, bus, and train. Air Asia offers a wide and innovative range of distribution channels to make booking and traveling easier. They promote growth and development through the provision of internet technology for its operational and strategic management. This enhances online booking services for travelers. Their objective for low costing is to increase their reach and provide services to a large segment.
The rising of the oil price and the unpredictable European economy challenges the tourism and travel operators in Asia. It is one of the external factors that affect the airline industry in Asia. Air Asia has remained strong due to its lower prices. The economic downturn has prompted many travelers to switch to the low-cost carriers like Air Asia.
The US airlines were affected by the economic downturn that hit America in 2009. The United States airline industry has recovered from their low growth rate of 5 % per year. Passenger traffic is predicted to rise up to 6% with similar annual growth rates from 2011 through 2014. On the other hand, the airline company’s profit depends largely on the oil prices. Statistics indicate that 34% of cost in major airline carriers is linked to the oil prices.
Industry/ Internal Analysis of Air Asia Company
The industry environmental factors in US and Asia vary in market share in both continents. The market share of air lines differ in terms of revenue and passenger traffic. Between 2006 and 2011, Malaysian airline has been decreasing in its market share percentage. According to trade sources, in 2006, Malaysian airline rated 84.6%, and in 2010 it rated 65.8%. These figures show how much Malaysian airline is decreasing in its market share. The loss-signal problem will need strategic adjustments to be implemented. On the other hand, Air Asia has been increasing in the market share rates. Between 2006 and 2010, there is notable increase. According to trade associations, in 2006, the market share rate was 5.6% and in 2010 it raised to 9.2%.
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The market shares in the US also vary depending on different airlines. Looking at two major airlines in the US- Continental and Delta airlines, there is a difference in increase and decrease of market share rates. Between 2006 and 2011, continental airline has been dropping in its market share rates. 8.3% to 7.9% shows a decrease. On the other hand, Delta airline has shown improvement with an increase in their rates from 11.9% to 15.1% in market share rates.
There is a high level of competition in the US industry compared to Asia. US market is comprised of many major players. The airlines include: United Continental Holdings, Delta Airlines, AMR, Southwest Airline, US Airways Group, JetBlue Airways, Alaska Airlines, UAL, Continental Airlines, Northwest Airlines, ATA West Holdings Corp.
The major players in Asia are only three. They include: Malaysian Airlines, Air Asia, and Berjaya Group.
Current company situation using PEST model
- Political: 50% is ownership by Thailand’s Prime-minister, support from Malaysian government,
- Economic: offsetting carbon emission, low cost fare
- Social-cultural: passengers with light and minimal baggage, introduction of free snacks and drinks
- Technological environment: more efficient engine and plane design, bio fuel such as algae, air ticketing and mobile phone booking.
Porter’s Framework analysis of the airline industry in US & Asia
Threat of entry
Entering a new airline requires a high level of capital to settle down things like hiring staff, purchasing or leasing aircrafts. However, Air Asia has had no threats in terms of new competitors because of maintaining low fare rates. This strength has enabled them to be popular during seasons of economic downturn. Moreover, the awareness of branding is important in the airline industry. There has to be a creation of brand loyalty to ensure a full trust from the consumers to choose their services. (Porter 23).
Power of suppliers
Power of suppliers affects the industry because there has to be someone who will play the role of a supplier. In the airline industry, airbus and boeing are the only major two suppliers. Nevertheless, the economic crisis in the world has reduced the upgrading of planes. Recently, Air Asia has placed a large demand of airbus for their company. This will enhance the management of passenger traffic and create a good name and reputation for the company.
Bargaining power of customers
The airline industry market is fully saturated and major airlines are competing for the same customers. This aspect ends up strengthening the buyers’ power. Air Asia has maintained its low cost of travelling, and this has reduced their customers bargaining power. The company should do more advertisements for their services and low price travelling costs to give them an advantage with the buyers or customers.
Threats to substitute
The availability of substitutes is low for international airlines. The threats are low because air travel is the only means to move across long distance destinations. The threat becomes high in national level because travelers may opt to use train, buses and personal vehicle. Air Asia; have made their low cost fare for travelers to afford travelling through airplanes.
The airline industry is fully saturated. There are a lot of service providers in both local and international markets. The airlines are competing for the same customers in terms of: customer services, technology, prices and inflight entertainment. There is usually a threat of low returns when the completion is high. Company branding helps in maintaining a good name for an airline company.
In conclusion, it should be noted that by giving offers that are 80% lower than their competitors, Air Asia has attracted more customers, making it the best low cost airline in the world. In a few years, there is no doubt that Air Asia will expand their market share and have more travel routes to the rest of the world.
Porter, Michael E. The Five Competitive Forces That Shape Strategy. Harvard business Review, 2008. Print.