Opportunities and Challenges for New Budget Airlines in Southeast Asia
1.From the case study, there are various macro and microenvironment in the south Asian region for the entrance of new airline. One of the most influential industry is competition because following late in the global trend there was the rapid growth of low-fare budget airlines across Asia. The challenge of competing with the Asian traditional full-service airlines is also a challenge to new entrants because most of them were highly cost-effective. Other macro environment factors which may affect new entrants in this region include government influence, technology, legal factors as they must adhere to various legal requirements among others.
By analyzing the environment of the Southeast Asian region, there are various opportunities presented which can favor the entrance of new budget airlines and also some challenges which can hinder their success. From this case, the success of low-fare budget airlines majorly relies on whether governments have a major influence on the airlines in their countries. One of the major opportunities is the government’s decision to liberalize air transport. The fact that some of the countries such as chine have decided to open up their air transport market system means that the demand for air transport will be high and this will enable new entrants to succeed. The region is also associated with high demand for low cost air transport because most of the people belong to the middle class. One of the challenges which the new entrants are likely to experience is the existence of incumbent carriers and a stagnant economy in some of the countries. According to the case study, the high costs involved with running Airline Company such as maintenance costs, staffing cost, and license fees may also be a challenge to new entrants.
2.Different opportunities have been presented for low-fare airlines in Asia because of different factor such as the relatively low-income levels in the majority of the Asian nations unlike in North America and western Europe where most of the people range from middle to high income. The demand for low-fare services in Asia-Pacific is also high because of the availability of different modes of transportation, and availability of less population which depend on expensive airlines, unlike in the western countries were people can rely on expensive airlines.
The demand for low fare may also differ between the three regions because comparing Asia with America and Europe, the level of government interference in the airline industry differs and therefore the demand also varies. While the demand may not be as high in the Asian Pacific region as compared to North America and Europe because of the tradition of government regulated flight industries, the chances of low-fare service coming in the airline industry and a substantial market share are high.
While comparing the demand among the three regions, it is crucial to understand the presence of high-speed rail makes the Asian markets to be more sensitive to fare variances than the American market. Additionally, although there are various changes that have been occurring in this industry, less utilization of internet resources and high dependency on travel agents and other middlemen makes the demand to vary across the three regions.
Demand for Low-Fare Service in Asia-Pacific Compared to North America and Europe
Also, Asian low-fare airlines have a smaller market share as compared to their dominance in the western markets. Unlike the western regions, the demand for these services in Asia is influenced because the low-fare airlines engage in competition with expensive providers, and in most cases target people who would not even think of traveling by air.
3.From the case study, AirAsia seems to be focusing on low cost structure as a structure of its business strategy and this can be shown by its idea of retaining the low cost strategy even when penetrating in foreign markets. Unlike AirAsia, southwest, and Ryanair mainly use differentiation strategies to make them appear unique in terms of their service provision. From this case study, AirAsia appears as an imitator in the market which is associated with less rivalry and growing demand from the previous non-existent market segment. This factor has made the company to become powerful in the market while imitating operational and marketing strategies which have shown to be successful in other markets.
AirAsia’s plan to implement internet bookings has made it possible for the customers to seek its services while focusing on low distribution costs. Unlike the other airlines, AirAsia uses an income formula which is mostly based on the traditional low-fare approach. For southwest airlines, the business level is based on differentiation and cost leadership. For the southwest company, the management was in the use of budget airline approach and this has made the company to be cost leaders through minimizing expenses and focusing on the provision of low price services to its consumers.
For the Ryanair airlines, its operational strategy corresponds to the operational excellence model as it has assisted the company to realize efficiency, and few cases which can affect customer loyalty and loss of market share. Just like AirAsia, the company utilizes the use of internet especially in bookkeeping to minimize costs. Regardless of the differences, the three airlines have a similarity: they all focus on low-fare strategy, customer satisfaction, and better services
4.Considering the fact that Fernandes had worked in Asia for some time, although in a different industry, he had learned various things which could influence business performance such as political, economic, and operational uncertainties and therefore he was aware of them. He was also aware of the economic condition of this region and that was the reason why he penetrated the market with proper strategies and positioned the company as a low-fare airline so as to cater for the customers who belonged to high, middle and low-income brackets.
Fernandes was also aware of the existing competition in this industry because after expanding the company’s operations in this market, various strategies were employed and enabled the airline to attain a competitive advantage within a short period of time. For example, after understanding and overcoming various challenges, AirAsia was termed as one of the major threats to MAS’ bottom line because of being a cheaper alternative for most of the middle-class travelers in South Asia.
When expanding to this region Fernandes understood that there were various companies that AirAsia would compete with and for this reason he came up with better ways of ensuring the company attained a competitive advantage. For instance, he knew that in the Asian transport sector there are different alternatives which travelers can use and therefore needed to come up with strategies which could make the company succeed irrespective of competition not only from airline sector but also from other providers. This was the reason why the company targeted even those who did not opt to travel by the use of aircrafts because he knew the low cost strategy would attract them.
Comparison of AirAsia’s Generic Strategy with Other Incumbent Carriers and with Southwest and Ryanair
From the analysis of the case study, one area which he seems to have overlooked is political risks because there are various major political factors in this region which are likely to affect most of the businesses in this industry. For instance, various Asian countries have been facing political instability, religious conflicts, and fluctuation of currency, corruption scandals, racism, discrimination problems, and other factors which may significantly affect business in the airline industry.
Fernandes seems to have also overlooked the fact that operating an airline requires a lot of money because of the various costs incurred. For example, the company would require money to service the aircrafts, to pay the workers and to fuel the airplanes. Considering the fact that he used low price strategy could put this company at risk of being unable to meet its costs because charging passengers low costs means the company was not making substantial income or revenue which could assist it to realize a substantial growth. Although having many customers would increase the rate of revenue, this was not guaranteed because of competition which exists in this industry.
5.Fernandes is a good entrepreneur because he knows how to identify a gap in a particular market, and how to come up with a good way of taking advantage of the available opportunities to operate a business. From the case, he identifies various factors such as low government influence in the south Asian airline industry and the demand for customers to get an airline that would provide better services at better prices. He is also demonstrated as a self-starter entrepreneur because he sets parameters and makes sure the process of penetrating a foreign market follow the correct path.
He can also be termed as optimistic because irrespective of various challenges such as competition in this industry, he trusted that he would succeed and directed the company to penetrate the market. Fernandes is also positive towards success because penetrating in the Asian market and winning competitive advantage is something that came along with sacrifice and better operational and marketing strategies.
Also, Fernandes has a strong entrepreneurial spirit because he is someone who is growth-oriented, confident, competitive and persistent. Additionally, considering how he management this airline, one can also state that he is flexible, responsive to change and insightful. , Fernandes is also portrayed as entrepreneurs because he values working with others such as McCarthy to identify risks, and also to make decisions based on appropriate level of research and consultations.
6.From the nature of the market, the capability of this company and Fernandes’ managerial skills, there are various strategies which, Fernandes can use to overcome the challenges posed by different players. The case study shows that AirAsia has the advantage of being first-to-market and therefore it is likely to various benefits such as increased customer loyalty, good revenue, strong brand image, and also government support. Additionally, this company seems to have an advantage over other international companies because it has proper knowledge concerning various key factors such as the Asian culture, economy, the nature of the market, and competition.
Risks and Entrepreneurial Strategy of Fernandes in taking over AirAsia
The company also seems to have sufficient resources which can make it possible to implement strategies which can challenge the entry of new players in this industry. Moreover, AirAsia has a management team with skills which required for expansion in foreign markets and therefore, this makes it possible for this company to attain a market share which new entrants may find it challenging to grab.
To respond to the challenges posed by incumbent carriers, AirAsia should use unique strategies like knowing who are its target customers and the best ways of satisfying their needs. For its management to neutralize the threat of government influence to favor its incumbent carriers, it is also crucial for its management initiate and maintains a positive relationship with the government through operating with the law so that it can get good support from various state agencies. Positive relations can also be maintained by coming up with mutually motivating goals so that the company can be seen as a significant contributor to the national economy, instead of being a competitor to the incumbent carriers. Taking advantage of various advantages which this company has instead of triggering hostile rivalry with the incumbent carriers is also advisable which can assist AirAsia to avoid the challenges posed by these companies.
7.Based on the nature of operations of Asian airlines, there is likely hood that the passers will shake out. One of the factors which may make this to happen is the fact there are different companies entering the market with different strategies and this may make the passers to have varying decisions on where to seek services from.
From this case study, there are chances that the Asian market may eventually resemble the north and American and European markets because as more low-fare airlines continue to penetrate the promising markets, competition will increase, and the price will be an essential factor in determining consumer decisions and choices. Other promotional tools will be essential for the players to establish and maintain customer loyalty, timely schedules, expediency, and ability to connect different locations. These tools will be essential in assisting Airline companies to attain competitive advantage and therefore it is advisable for companies such as AirAsia to start implementing the right initiatives as soon as possible in order to find out those that can assist them to dominate the Asian market as it becomes more crowded.
From this study, there are various lessons which can be drawn from American and European experience. One of them is that every market presents an opportunity and therefore it depends on the strategies which a company use to penetrate and operate in the markets. Although the Asian market is associated with low-income people as compared to the other markets, there are chances that low-fare airlines companies can still do better in the American and European markets if they penetrate with proper strategies. The other lesson is that these two markets are not as competitive as the Asian market because there are so many alternatives to airlines.
8.Considering the operational strategies used by this company, it has the ability to penetrate to different markets and still attain a competitive advantage. Although AirAsia has various strengths, its success of a company depends on the strategies which the management choose to use. Although in these markets there are various barriers such as unstable economic conditions, politic, competition, and others, AirAsia seems to have a team of management which knows how to deal with barriers which can hinder the success of this company.
By analyzing this company, it is clear that it is successful in executing the strategies required in the airline industry, and should capitalize on the ability by expanding to similar markets, especially China and India. The reason why this decision may be crucial for this company is that China and India are among the countries with strong economies in Asia and therefore if it takes advantage of its strengths, there are possibilities that the company will realize a significant growth.
For AirAsia, expanding to a foreign market will not only create new revenue but will also assist the company to get rid of the reliance on its current markets. By analyzing the market of these other countries, it appears that they differ from Asia’s’ current markets and therefore AirAsia should avoid expanding to too many markets and concentrate on the ones which seem to promote sustainable growth.
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