BPME 3013 BUSINESS GROWTH MANAGEMENT
1.0 Introduction
We are semester 4 UUM 2014/2015 which are Tati Kartika Mojinim, Nur Amyliana
Mastura Binti Ramli, and Sarveswari Narayanan. Here we are giving task to make a research
about Malaysian- owned fast growing small and medium enterprise based on managing a
growing business. We are choose Air Asia Company as a company to our research for this
subject BPME 3013 Business Growth Management.In this task we have to identify about the
company background and identify the entrepreneur who build the company to this level
growth.
So, we choose Air Asia company and the founder of this company is Tan Sri Dr. Tony
Fernandes. Here we make a research toward this company and we elaborated about this
company. According this subject , we have to elaborated about how the company managing
their growing business that include about growth firm characteristics, growth strategy, and
challenges or darkside of the firm. From this task ,we have a oppurtunity to identify the
journey of Air Asia and capable of this company to achieve their objective with clearly.
1
BPME 3013 BUSINESS GROWTH MANAGEMENT
2.0 Background of Company
2.1 History of Air Asia
The Air Asia airline was established by a Malaysian conglomerate in 1993 and
commenced operations in 1996. In December 2001, with the airline heavily in debt, Air Asia
was purchased by Tony Fernandez of Tune Air Sdn. Bhd. for the price of RM1 mill. As part
of the purchase, Tony also took up the RM40million debt. Under the leadership of Tony
Fernandez, the airline was flying high in 2002 and launched its new route that year. In 2003, a
second hub was opened in Senai International Airport, Johor Bahru, as well as the airline’s
maiden international flight to Bangkok. After that the only place Air Asia was heading for is
up, as the Thai and Indonesian subsidiaries were set up as well as the commencement of
flights to Indonesia, Macau, China, Philippines, Vietnam and Cambodia in 2005. Air Asia
now flies to all ASEAN countries, a great portion of Asian countries that include India, Iran,
Sri Lanka and Bangladesh; as well as to the United Kingdom, France, Japan, Korea and
Australia via Air Asia X. In 2011, there are setting up another Air Asia hub in the Philippines
and are well on the way in setting up other similar operations elsewhere in the region soon
after.
Air Asia is well known as Malaysian low cost airline and even Asia’s largest low fare,
no frills airline. The airlines claims. “No Admin Fee”, but has some fees for services which
are free on other airlines. Air Asia slogan is “Now Everyone Can Fly”. Being the home of Air
Asia, the LCCT is the budget terminal in KLIA, opened on 23 March 2006. LCCT is said to
be carried about 10 million passengers a year. The Air Asia subsidiaries are the likes of Thai
Air Asia, Indonesia Air Asia, Viet Jet Air Asia and Air Asia Red Tix. Meanwhile, Air Asia
associate companies are Air Asia X, Tune Hotel and Tune Money. Today, Air Asia has flown
over 55 million guests across the region and continues to create more extensive route network
through its associate companies. Air Asia believes in the no-frills, hassle-free, low fare
business concept and feels that keeping costs low requires high efficiency in every part of the
business.
2.1.1 Vision and mission of Air Asia
Vision of Air Asia is to be the largest low cost airline in Asia and serving the 3
billion people who are currently underserved with poor connectivity and high fares.
While the Mission of Air Asia is to be the best company to work for whereby
employees are treated as part of a big family. Create a globally recognized ASEAN
brand. To attain the lowest cost so that everyone can fly with Air Asia. Maintain the
2
BPME 3013 BUSINESS GROWTH MANAGEMENT
highest quality product, embracing technology to reduce cost and enhance service
levels.
2.2 SWOT Analysis of Air Asia
2.2.1 Strengths of Air Asia
Air Asia has a very strong management team with strong links with
governments and airline industry leaders. This is partly contributed by the diverse
background of the executive management teams which consists of industry experts
and ex-top government officials. This has helped Air Asia to open up and capture a
sizeable market in Thailand. With their strong working relationship with Airbus, they
managed to get big discount for aircraft purchase which is also more fuel efficient
compared to Boeing 737 planes which is being used by many other airlines. The
management team is also very good in strategy formulation and execution. The
strategy that they have formulated at the beginnings was a clever blend of proven
strategies by other low cost airlines is US and Europe.
Air Asia’s brand name is well established in Asia Pacific. Besides the normal
print media advertising & promotions, Air Asia’s top management also capitalized on
promotions through news by being very “media friendly” and freely sharing the latest
information on Air Asia as well as the airline industry. Their partnership with other
service providers such as hotels and hostels, car rental firms, hospitals (medical
tourism), Citibank (Air Asia Citibank card) has created a very unique image among
travelers. Alliance with GalileoGDS (Global Distribution System) that enables travel
agents from around the world to check flight details and make bookings have also
contributed to their string brand name. Air Asia’s local presence in few countries such
as Indonesia (Indonesia Air Asia) and Thailand (Thai Air Asia) have successfully
“elevated” the brand to become a regional brand beyond just Malaysia. The links with
Manchester United (one of the world’s most famous football teams) and AT&T
Williams Formula One team have further boosted their image to a greater extend
beyond just the this region Air Asia is the low cost leader in Asia. With the help of Air
Asia Academy, Air Asia has successfully created a “low cost airline mentality” among
their workforce. The workforce is very flexible and high committed and very critical
in making Air Asia the lowest cost airline in Asia.
2.2.2 Weakness of Air Asia
3
BPME 3013 BUSINESS GROWTH MANAGEMENT
Air Asia does not have its own maintenance, repair and overhaul (MRO)
facility. It may be a good strategy when they first started with only Malaysia as the
hub and few planes to maintain. But now, with few hubs (Malaysia, Thailand and
Indonesia) and over 100 planes currently owned and about another 100 planes to be
received in the next few years, Air Asia have to ensure proper and continuous
maintenance of the planes which will also help to keep the overall costs low. It is a
competitive disadvantage not to have its own MRO facility Air Asia receives lot
complaints from customers on their service. Examples of complaints are around flight
delays, being charged for a lot of things and not able to change flight or get are fund if
customers could not make it. Good customer service and management is critical
especially when competition is getting intense.
2.2.3 Opportunity of Air Asia
There are 2 major events that are taking place now or going to take place in
less than 6 months from now. First, is the ever increasing oil price? Second, is the
“ASEAN Open Skies” agreement that has been reached? The increasing oil price at
the first glance may appear like a threat for Air Asia. But being a low cost leader, Air
Asia an upper hand because its cost will be still the lowest among all the regional
airlines. Thus, Air Asia has a great opportunity to capture some of the existing
customers of full service and other low cost airline’s customers. However, there will
be also some reduction in overall travel especially by casual or budget travelers. The
“ASEAN Open Skies” allows unlimited flights among ASEAN s regional air carriers‟
beginning December 2008.
This will definitely increase the competition among the regional airlines.
However, with the “first mover” advantage as well as its strengths in management,
strategy formulation, strategy execution, strong brand and “low cost” culture among
its workforce, this agreement can be seen as more of an opportunity. There is also
some opportunity to partner with other low cost airlines as Virgin to tap into their
existing strengths or competitive advantages such as brand name, landing rights and
landing slots (time to land).The population of Asian middle class will be reaching
almost 700 million by 2010.This creates a larger market and a huge opportunity for all
low cost airlines in this region including Air Asia. The global economic downturn has
resulted in decline in airlines business. This affected the budget airlines as well.
However, as for Air Asia this situation created an opportunity .The leasing costs of
airplanes were drastically reduced by about 40%. This enabled Air Asia to lease
4
BPME 3013 BUSINESS GROWTH MANAGEMENT
planes at a cheaper rate on pass on the cost savings to customers in the form of
cheaper fares.
2.2.4 Threats of Air Asia
Threats In the era of globalization, the airline industry was also affected global
uncertainties such as accidents, terrorist’s attacks, and disaster which affected the
customer confidence to a certain extent. If customer confidence is affected, Air Asia
may face the threat of losing its profitability, or even lead to bankruptcy. Being a low-
cost carrier, Air Asia is subjected to aviation regulations and government restraint,
geography and infrastructure of Asia and the travelling preferences of customers.
Overall under political heading there are more opportunities than threats. In Malaysia
as Air Asia is subjected to undergo several government regulations, the airline only
could minimize or contain the negative impacts by selecting the most favorable
routes. Threats During this period of recession, the air transport industry also faced
fluctuations in fuel prices. Whenever the price of fuel rose it had an impact on the
airlines’ operating costs. This would result in decrease in yield and profitability.
2.3 The growth characteristics owned by Air Asia Company
2.3.1 Entrepreneurial leadership
Aligned with its mission statement, Air Asia’s business strategy is centered on
cost leadership. However, its business strategy targets specific markets; price sensitive
customers (including first-time fliers) needing short-haul flights. In Porter’s generic
strategies, Air Asia’s business strategy can be categorized into focused cost
leadership. Air Asia builds and sustains its competitive advantage by 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 Air Asia. 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 analyzing Air Asia’s value chain, one can actually determine
how Air Asia creates cost advantages along its value chain. The sources of cost
advantages contributable to the low cost business model for each activity in Air Asia’s
value chain. These cost advantages constitute Air Asia’s order winner in competing
with its rivals as they enable Air Asia to provide the lowest possible price to the price
5
BPME 3013 BUSINESS GROWTH MANAGEMENT
sensitive customers. In LCC industry, cost is the competitive priority and it
determines market position.
2.3.2 The focusing on expanding marketing strategy and adopted changes on
technology.
Air Asia has fostered a dependency on Internet technology for its operational
and strategic management, and provides an online ticket booking services to traveler
online. The following shows the home page of AirAsia.com as the company key
channel of marketing and sales. The followings are few system implementations that
Air Asia have done in its marketing and sales activities (Yield Management System
and Computer Reservation System) as well as operation activity (Enterprise Resource
Planning System) and allocate capacity to maximize expected revenues. The
optimization is done on two levels in Air Asia
Firstly, seat (Every seat is considered an opportunity to maximize revenue.
Seats are available at various prices in different points of time. A reservation done at a
later date will be charged more than the one done earlier – for the same seat).
Secondly, route (By adjusting prices for routes/destinations that have a higher demand
when compared to others). The effective method however is to combine these two
levels for all flights, all routes so that both the seat and the route are effectively priced
for all the flights.
Air Asia has realized increased revenue (3-4%) for the same number of
aircrafts by taking advantage of the forecast of the high/low demand patterns,
effectively shifting the demand from low period to high period and by charging a
premium for late bookings. Over the past couple of years, Air Asia have actually
lowered prices (essential for LCC) as the YMS has given them the window to increase
their revenue by offering higher discounts, more frequently during off-peak times
while raising prices only marginally for peak times.
2.3.3 Quality of service by Air Asia
The quality of service that Air Asia approach is Computer Reservation System
(CRS). It is an integrated web-based reservation and inventory system. It includes
Internet, call center, airport departure control and more. It is a direct sales engine that
effectively eliminates the middleman (travel agents) and the sales commissions that
need to be paid to them. Centralized customer data is also maintained by Open Skies
6
BPME 3013 BUSINESS GROWTH MANAGEMENT
and this helps Air Asia to track booking and schedule flight activities with real-time,
on-demand reporting feature. The vast booking information that is provided online to
the customers acts as a force that brings more customers to use the website thus
reducing the customer support costs. An important feature is that Open Skies
seamlessly integrates with the already implemented YMS so that the systems can be
used in unison for pricing and revenue maximization (by providing information on
bookings, schedules etc.) and driving down the costs of operation at the same time.
This CRS enabled Air Asia to introduce the first ticket less travel option and
also provides features such as advanced boarding passes in addition to online booking
that enabled the growth of Air Asia as these features attracted customers that did not
have the time for purchasing tickets from counters and coming in 1 hour early for
securing a seat on the aircraft. Air Asia have proposed to implement a Wireless
Delivery System (WDS) to expand its reach via mobile phones. With this, potential
customers will be able to book tickets via their mobile phones. This is a strategic
move for growth as the Asia-Pacific region has a larger population of mobile phone
users rather than internet users.
2.3.4 Branding, Innovation and Partnership
