1. Briefly describe the trends in the global airline industry.
In terms of the ownership, during the early days, most airline companies were owned and operated by the governments. However, in recent years, most ownership has been privatized and has gradually changed from governments to private and individual sectors or organizations. For example, AirAsia used to be owned by the Malaysian government but was later taken over by Tony Fernandes.
In terms of the demand, in the early years the annual growth rates increased although inconsistently in all the regions. However, each year usually the profits earned are lower than the year before. Even after all the investments in the airline industry, the net profit is less than zero. Therefore, Warren Buffett said it is one of the hardest businesses to manage. The industry suffered its worst downfall after the September 11 incident. However in recent years, the industry is regaining its demand, though very slowly.
In terms of its services, airline companies used to offer additional services that increase the fares, thus causing a burden for the consumers. In modern industry, they now offer ‘no frills, low fares’ service that eliminates all the unnecessary services to reduce the cost and fares of flight.
2. What is the business level strategy adopted by Air Asia?
One of the business level strategies adopted by AirAsia is ‘no frills, less cost’ concept. AirAsia was the first low-cost carrier (LCC) in Asia and it became a successful business model. This helped AirAsia to get ahead of its competitors. Later on, when the other competitors started to adopt the same strategy, AirAsia evolved from an LCC into an integrated service provider, offering other services such as financial services (travel insurance and holiday products).
Aside from that, AirAsia was the first Asian airline to introduce fully ticketless travel and implement a free seating policy. In addition, AirAsia allowed the passengers who paid extra for its Xpress Boarding service to board earlier to enable them to choose their seats easily. Furthermore, AirAsia provided long-haul regional service at a lower price than other competitors.
Initially, AirAsia was a domestic company, providing routes within and around Malaysia. This changed after Tony Fernandes took over AirAsia. It has opened other hubs in different countries such as Indonesia, Australia and Singapore. AirAsia also expanded its business domestically. Originally, the AirAsia hub was only available at KLIA. Now AirAsia hubs can be found all around Malaysia. Furthermore, AirAsia allowed their customers to check-in via online and print their own boarding pass. Additionally, AirAsia has “Real 5 Star” offerings, such as its leather seats and in-flight hot meals. AirAsia also introduced an “on-time guarantee”, where it will give e-gift vouchers worth US$61 to the customers if there was a flight delay.
3. How does Air Asia achieve cost leadership through differentiation?
AirAsia was the first to introduce ‘no-frills, low fares’ service to the market. It removes all the unnecessary services to reduce the cost. Under the tagline “Now Everyone Can Fly”, the fares were reduced by 40% to 60%. This attracts the customers as the fares are reasonable and affordable compared to other airlines. Because of its favorable price, AirAsia has become the customers’ number one choice for airline companies. AirAsia made a significant amount of profits and this threatens the other competitors. Due to the effectiveness of this strategy, the other competitors have to reduce their flight fares as well to avoid more loss of customers’ loyalty.
4. Identify the ways Air Asia can sustain its competitiveness through the business level strategy that is adopted?
AirAsia can sustain its competitiveness by opening more hubs in more countries around the world, not just limited to Asia. By expanding its business across the world, AirAsia could be the number one airline company in the world while providing services at a price that is simply lower than competitors’ price. Operation effectiveness and outstanding efficiency are two main characteristics of low cost businesses including AirAsia. The central objective is to achieve bigger cost advantages than the rivals by continuously searching areas for cost reduction along its value chain. By further analysing AirAsia’s value chain, one can actually determine how AirAsia creates cost advantages along its value chain.
