Company Background
Strategic Analysis is considered to be a relevant part of any organization and any firm which is involved in the dynamic business environment will be required to ensure that they are able to take essential measures so as to see to it that they are successfully able to achieve a competitive edge and win over its competitors at large (Rothaermel, 2015). Hence, the primary objective of the report is highlight the key issues being faced by the chosen public company, Air Asia and use the tool of environmental analysis to understand the manner in which these market and competitive forces will have an impact on the operations of the firm. The strategic tools like SWOT, PEST and Michael Porter`s Five forces will be used for the same. Certain recommendations will also be provided based on the same.
The Air Asia Berhad which is registered under the stock market of Malaysia as MYZ: 5099 is a low cost airline company with its headquarters in Kuala Lumpur in Malaysia. The airline is the largest airline as present in Malaysia with respect to the destinations and the fleet size. Air Asia has established itself well with respect to the globe`s low cost airline with a unit cost of US$0.023 per available seat kilometer (Airasia.com., 2018). The airline has a turnaround time of 25 minutes and has a good crew productivity level which has often been praised. The Airline has been consistently winning the award for the world`s best low cost carrier for the international travels and the last award which it won was in the year 2017.
The given company has been chosen for the purpose of analysis because it is one of the most popular companies around the globe. Moreover, the firm, is one of the largest Malaysian companies whose low cost business model has been praised throughout and stands strong even in the times of extreme competition. Along with this, the organization`s low cost model has been copied by several other organizations and for this reason, it is important that the different strategies and other market related factors are strategically analyzed which would then assist the company in forming plans and strategies accordingly (Miner, 2015). Conducting a strategic analysis on this company would also go a long way in ensuring that the different concepts of the strategic management are understood well and that the implications of the real life situation can be understood well.
Reason for choosing the company
The Strategic Analysis can be essentially described as an analysis of the various aspects of the environment like the Market as well as the Competitor Analysis. The strategic analysis goes a long way in helping a firm to ensure long term success by assisting them to form adequate plans.
The PEST Analysis can be described as a useful strategic tool which assists any organization in understanding the different competitive forces which exist in the external environment of a firm. The PEST Analysis examines four different factors like the Political, Economic, Social and Technological aspects which thereby assists any organization in understanding the different strategies which they are required to make (Sukati & Khiang, 2015).
The political factors can be rightfully defined as those factors which tend to have a strong impact on the overall operations of the business (Morden, 2016). As Air Asia functions in Malaysia, flying outside with respect to the international flights is a difficult aspect as the bilateral agreement forms a major obstacle between the operations of the low fare carriers. Due to these bi-lateral agreements, the low cost airline industry in the South-eastern region has remained largely underdeveloped (Roy, 2014). Moreover, the threat of terrorism tends to have a strong impact on the consumer interest and hence, the government has a major role to play in this case.
The economic factors can be rightfully described as factors like the economic system which exists in a country. The fiscal policies, exchange rates, other bank rates and related decisions also tend to have a huge impact on the overall operations of the organization. Malaysian Airlines provides a strong sense of competition to Air Asia but the low cost carriers is maintaining its positioning by offering considerably cheaper tickets and few flight services which then attract a large number of customers (Robson, 2015). A few months back, the recession which took place in the aviation industry had a huge impact on the operations of the airlines and hence, with respect to this, the consumers enjoy travelling cheap. The oil prices also tend to play a major role for the airlines.
With respect to Air Asia, the different customers often like to avoid boarding the no frills airlines for a longer flight as it tends to become uncomfortable at large. The aviation industry has witness a considerable growth due to the increase in business and trade along with the increase in the number of tourists at large. According to Morschett, Schramm-Klein and Zentes (2015), various consumers have Severe Acute Respiratory Syndrome (SARS) which scares different people and for this reason, Air Asia adopts a Safety First policy to ensure its customers that it follows all the ethical standards of flying and ensuring the security of the guests as well as the staff at large.
Key issues: Strategic Analysis – Market and Competitors Analysis
The Air Asia airlines tends to make use of advance technology in order to ensure that it is successfully able to maintain a competitive positioning in the market. In order to gain wider revenues, Air Asia tends to provide an online service which combines air ticket with hotel booking, insurance and hiring of cars as well. It has pushed internet booking services as well so as to ensure that the middle men are paved out of the way and the company gains the maximum out of the given situation (Hill, Jones & Schilling, 2014). Along with this, with the help of advanced technology, Air Asia has introduced GO Holiday as an online program whereby the guests will be easily able to book holiday packages. Moreover, with respect to the physical appearance, the airlines company has recently replaced its Boeing 737 model with A320 so that they can gain the advantage of fuel efficiency and excess capacity which thereby contributes towards a better performance and reliability on the side of the customers (Zhang et al., 2017).
Hence, it can be stated that the number of factors, as present in the external environment of the firm is generally unlimited and for this reason, Air Asia must prioritize accordingly and ensure that these factors have a favorable impact on their firm. According to Sukri, Abdullah and Waemustafa (2014), the use of scenario planning techniques can be made to ensure success in the long run.
The SWOT Analysis is another useful strategic tool which can be rightfully used by the different companies in order to analyze their strengths as well as weaknesses along with the external opportunities as well as the threats to which the firm is exposed to at large (Zott and Amit, 2013). The given section outlines the SWOT Analysis for Air Asia.
The strengths of the company can be essentially described as the internal capabilities as possessed by the firm which assist in achieving a competitive advantage. The strengths of Air Asia are as follows:
- The company has a low operational and maintenance cost whereby it operates on a single type of fleet such as the Boeing 737 or the Airbus A-320 (Sukati & Khiang, 2015). This facility provides the airlines with economy of scales and saves a large amount of costs.
- It serves on a low operating cost system and is fairly labelled as No Frill systems whereby it engages in online booking system, quick check in and on flight purchases to ensure long term success.
- It has a large target market base as it ensures targeting audiences who travel by alternate means and can use the cheaper flight rates to travel faster by making the same.
The weaknesses can be essentially described as those aspects which are an inability for the firm at large. The weaknesses of Air Asia are as follows:
- The line of services involves huge investments which enables them to purchase the planes and implement the technologies for their services.
- The fuel prices have been rising considerably which thereby causes additional operational costs (Michael, Storey & Thomas, 2017).
- With respect to long hour’s flight, their no frill becomes difficult to implement.
An opportunity can be rightfully described as the presence of a factor in the market which can be availed by the firm at large. The different opportunities for Air Asia can be stated to be as follows:
- The use of SMS booking can be used by Air Asia to book their seats and hence, this will ensure larger bookings (Merat & Bo, 2013).
- The airlines can adopt the means of artificial intelligence to ensure long term success.
- Air Asia has a segment of the market untapped like for the business travelers and first time flying segment.
The threats can be described as those external components which impact the overall performance of the Airlines.
- The competition with respect to the no frills airlines has increased considerably after Air Asia`s success.
- Singapore Airlines is under the planning to launch a similar business line and for this reason, this may affect the international operations of the firm.
- Lastly, as the long hour flights of the airlines are not comfortable, this serves as a threat to the company at large (Lasserre, 2017).
PEST analysis
The Michael Porters Five forces tools can be essentially described as the analysis of the industry environment by making use of the five competitive forces of the airline brand. The five forces as present in the industry are as follows:
The threat of new entrants can be described as the factor which identifies how easy it is for a new firm to enter into the airline industry in which Air Asia tends to operate. With respect to the Malaysian airline industry, this threat is comparatively low due to a large number of reasons. These reasons are the reasons like the weak loyalty of the customers (Ethiraj, Gambardella & Helfat, 2017). As the customers easily switch from one Airline Company to another this tends to lead to a lower threat of entrants. Along with this, the startup cost of the airlines company is considerably high and this tends to form a huge barrier for the entrants. Along with this, Air Asia not only makes use of the airlines segment but other travelling experiences as well. The switching costs of the customers is also low which is another reason why the threat of the new entrants is particularly low. Lastly, the governmental regulations in the industry are comparatively strict which then leads to various issues with respect to the new companies who want to enter the industry.
The rivalry among the existing firms is decided by the level of competition which exists in the frim. The competition can be stated to be considerably high. This is because the number of competitors as present in the industry is comparatively quite high which tends to cause intense price wars (Doz, 2017). In addition to this the fixed costs as present in the industry are comparatively very high as well. And if such high costs have to be incurred, the competition becomes considerably higher. Moreover, the exit costs are considerably higher as well which causes intense competition. Lastly, the offerings as made by the other airline companies tend to make the competition more intense.
The threat of the substitute products is considerably higher in the firm due to the presence of a large number of factors. These factors comprise of the different factors like easy switching costs for the customers (Bettis et al., 2014) Moreover, the primary reason the threat becomes higher is that the only difference between the different competitors is the service they provide. If the take off time or the punctuality schedule of one flight is better, the customers would like to adopt that at large and hence sales are affected. Lastly, the presence of the relative pricing system makes the threat of substitutes higher and more dangerous for the company, Air Asia.
SWOT Analysis
In case of Air Asia and the aviation industry, the bargaining power of the buyers can be considered to be very high. This is because, the products being offered by the different companies is considerably very high and due to this, the buyers can easily switch from one firm to another which thereby causes a huge pressure on Air Asia. Along with this, due to the rise of internet and other related services, the customer access to information about the market and related airlines has increased considerably which tends to lead to them making decisions as per their own choice. Along with this, it can also be stated that the power of the buyers is concentrated which tends to cause difficulties for the brands.
The bargaining power of the suppliers is also considerably high as the supplier concentration lies in few hands and hence, this leads to a sense of monopoly by the suppliers. Along with this, the suppliers are also in a powerful position as the switching costs for the firms are considerably high which shall then lead to additional expenses on the side of the company of training and other related costs (Alkhafaji & Nelson, 2013). Along with this the influence of the buyers to the suppliers is considerably high which then leads to a large concentration of powers in their hands.
Conclusions & Recommendations
Therefore, from the given analysis it can be rightfully stated that the company Air Asia has been performing considerably well with respect to the unique business model which it makes use of. The company is a market leader in the Malaysian Airline industry and hence, has ensured adequate performance to gain an international market. The given report followed a systematized format whereby the introduction highlighted a brief overview of the company which was then followed by the reason for choosing the company. The second part of the report conducts a strategic analysis of Air Asia using the different tools like the PEST Analysis, Porters Five forces and the SWOT Analysis. The analysis reflected that although Air Asia is performing considerably well but there exists various external factors which have a strong impact on the performance of the firm. The next section of the report provides certain recommendations which can be used by Air Asia in order to improve upon its strategic positioning.
The different recommendations provided to the company are as follows:
- Air Asia is currently required to reevaluate its present strategy which will then allow the organization to maintain its competitive strategy and maintain its low cost image in the market (Barney, 2014). It can be in the form of a new marketing strategy or a diversification strategy to ensure considerable success for the firm.
- In addition to this, Air Asia will also be required to ensure that it undertakes a technical study to avoid any risks which may exist in its way. They may try to have a spare aircraft in hand so that they are able to ensure any delays and avoid unforeseen situations.
- The oil prices end to play a major role in the organization in the airline industry and hence, for its welfare, Air Asia needs to engage into a long term relationship with the fuel suppliers for the assurance of stability of the operations(Wheelen et al., 2017)
- On the environmental side, Air Asia can consider the implementation of an environmental friendly operations systems like the carbon offsetting so that they can contribute towards saving the environment.
References
Airasia.com. (2018). AirAsia: Book Cheap Flights Online To Over 130 Destinations! [online]. Available at: https://www.airasia.com/en/home.page (Retrieved on: 25 Oct. 2018).
Alkhafaji, A.& Nelson, R.A. (2013). Strategic management: formulation, implementation, and control in a dynamic environment. Routledge.
Barney, J.B. (2014). Gaining and sustaining competitive advantage. Pearson higher ed.
Bettis, R., Gambardella, A., Helfat, C. & Mitchell, W. (2014). Quantitative empirical analysis in strategic management. Strategic Management Journal, 35(7), pp.949-953.
Doz, Y. L. (2017). Strategic management in multinational companies. In International Business (pp. 229-248). Routledge.
Ethiraj, S. K., Gambardella, A., & Helfat, C. E. (2017). Reviews of strategic management research. Strategic Management Journal, 38(1), 3-3.
Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Cengage Learning.
Lasserre, P. (2017). Global strategic management. Palgrave.
Malaymail.com. (2018). CNY cheer: Fuel price down again [online]. Available at: https://www.malaymail.com/s/1582539/cny-cheer-fuel-price-down-again ( Retrieved on: 25 Oct. 2018).
Merat, A. & Bo, D. (2013). Strategic analysis of knowledge firms: The links between knowledge management and leadership. Journal of Knowledge Management, 17(1), pp.3-15.
Michael, S., Storey, D., & Thomas, H. (2017). Discovery and coordination in strategic management and entrepreneurship. Strategic entrepreneurship: Creating a new mindset, 45-65.
Miner, J.B. (2015). Organizational behavior 1: Essential theories of motivation and leadership. Routledge.
Morden, T. (2016). Principles of strategic management. Routledge.
Morschett, D., Schramm-Klein, H. & Zentes, J. (2015). Strategic international management (pp. 978-3658078836). Springer.
Robson, W. (2015). Strategic management and information systems. Pearson Higher Ed.
Rothaermel, F.T. (2015). Strategic management. McGraw-Hill Education.
Roy, A. M. (2014). Air Asia: what has made it Asia’s largest budget airline?. Academy of Taiwan business management review, 10(3), 28-32.
Sukati, I., & Khiang, T. B. (2015). Customer Satisfaction Level Provided by Air Asia. Asian Social Science, 11(13), 16.
Sukri, S., Abdullah, F., & Waemustafa, W. (2014). Customer satisfaction and loyalty in the airline industry: A case study of Malaysia Airlines (MAS) and Air Asia.
Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2017). Strategic management and business policy. pearson.
Zhang, A., Hanaoka, S., Inamura, H., & Ishikura, T. (2017). Low-cost carriers in Asia: Deregulation, regional liberalization and secondary airports. In Low Cost Carriers (pp. 55-69). Routledge.
Zott, C. and Amit, R. (2013). The business model: A theoretically anchored robust construct for strategic analysis. Strategic Organization, 11(4), pp.403-411
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