Introduction

AirAsia is one of the largest low-cost carriers leading in South East Asia and also
currently providing long-haul international flight by using the same low-cost fares
so that everyone can fly. The mission statement of AirAsia is to maintain the
highest quality product, embracing the technology to reduce cost and enhance
service levels and to attain the lowest cost so that everyone can fly. Vision 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.
AirAsia founder Tony Fernandes bought over the making loss making company
from Its Malaysia Owner DBR-Hicom Bhd for one Ringgit and agreed to take in
the airlines 40 million debts in 2001 and subsequently the airline was relaunched in January 2002, with only three aircraft and a seat-mile cost that was
half that of the national carrier, Malaysia Airlines.
On 22nd November 2004, Air Asia became an officially listed company on
Malaysia Stock Exchange. It had achieved another milestone, after its sevenmonth legendary turnaround. Now AirAsia has operated a fleet of 90 aircrafts and
flew to more than 60 destinations from hubs in Malaysia, Thailand and Indonesia.
AirAsia operates more than 3,500 flights a week and in its short history, has
ferried more than 90 million guests.

PEST
Political Landing charges is a big factor which influence on costing of low fare
carriers. Initial, Singapore government unwilling to allow AirAsia flies into
Singapore, on top of the Malaysian governments policy of not opening Kuala
Lumpur to LCCs from Singapore. Finally on 2007, the Malaysian cabinet finally
agreed to liberalize the KL- Singapore route, allowing AirAsia to operate the
lucrative air service, thus, breaking the duopoly shared by MAS and SIA. The
Singapore government too had a change of mind eventually, and allowed AirAsia
to fly to Singapore in 2008 after years of bickering.
Economic - In spite of strong competition from others budget airlines, such as
Tiger Airway, JetStar. AirAsia's low-cost carriers offering inexpensive tickets and
few in-flight services are gaining attraction in the region. The current recession hit
aviation business. However, with this economic slowdown, more people will
prefer to buy the cheap tickets. Oil price is another factor. If the price of oil is
high, the cost of this operation is very difficult to control.

Social - Over the years, the revolutionary generations emergence into the
consumer class has resulted in major social changes, where consumers have
become much more demanding. Therefore, to meet the increasing demands of
this segment, airlines have to stabilize their costs and also provide good services
to consumers.
Technology AirAsia utilize technology information such like internet to enable
consumer to book, check, manage booking easily. Consumer not only can buy
the low fare ticket but AirAsia also save its operational cost. The use of
technology will help AirAsia to reduce on fuel cost and improve its efficiency.

Porters 5 forces
Threat of new entrant
1. Customer has slight brand loyalty most of the AirAsia customer is
attracted by the low air fare ticket, they do not have brand loyalty with the
brand of a company. They will choose another airline such as Tiger
Airways, JetStar and Scoot which also offer low-cost air fare. It attracts
new entrants to enter this industry such as recent Malindo and Firefly. New
entrants and competitors are decreasing the customers loyalty and
AirAsias market.
2. High capital cost High capital requirement is one of the barriers to
entering airline industry. The cost of purchase airbus, Boeing setting up
office and equipment, hiring staffs is very high. Thus, this is one of the
reasons airline industry is not very competitive compared to others. In
order to compete with other airlines, AirAsia always offered low cost air
fares like Zero airfare to attract customers.
3. Different product offered AirAsia not only sells air ticket but also expands
their services such as hotel and tour booking at low cost. AirAsia build
good relationship with their business partner in order to gain benefit so
other competitors are difficult to compete with AirAsia.
4. Moderate access to distribution channel Customer can easily access to
AirAsia website to check ticket, book ticket and manage booking .This
hassle free service is very easy and efficient for customers because they
can purchase air tickets anywhere and anytime. The popularity of the
AirAsia website is the highest compared to others, therefore it is difficult
for competitors to compete with AirAsia.

5. Strict government regulations As there are a lot of competitors

increasing in the airline industry, and the government wants to protect the
national airline, MAS, which is facing huge losses in the years back largely
due to the inefficient management, thus this is very difficult for newcomers
to obtain a license and permit for operating an airline company.
Rivalry among existing firms
1. High numbers of rivals There are a high numbers of competitors
being faced by AirAsia currently, Such as Tiger Airways, JetStar, JAL
Express and etc. They may compete with AirAsia in term of the new
route which is not covered by AirAsia or able to offer at a lower price to
compete with AirAsia.
2. High fixed cost Fixed cost incurred by an airline company is very
high. The cost may consist of finance cost, staff cost and hire purchase
cost. As the fixed cost is very high, thus the airline companies may
reduce the price to attract more consumers to increase the market
share to cover the fixed cost. Hence, the rivalry is strong.
3. Consumers easily switch Most of the consumers prefer the lowest
airfares. They may compare the price with others airline companies
when they buy the air tickets. Thus, this is one of the reasons
consumers easily to switch which make this industry more competitive.
4. High exit cost High exit cost may be one of the reasons to force the
airline company to continue its business. It is because of the cost is
high in paying off the loan or debts and the cost may include of staff
retrenchment and refund of the flight cancellation. Thus, the
companies have to continue running for the business to cover the
costs. This may make the industry become more competitive.
5. Products are similar Substantially all the airlines companies offer
similar services to its consumers. Hence, AirAsia expands their
services for hotel booking or tour packages to enhance their
competition.
Threat of Substitute product
1. Easy to switch There are many airline which provide same service to
the customer which sends them to the intend destination. It is always
easy for the consumers to switch to other airlines.

2. Performance of substitutes As mentioned earlier, all the airline

companies are offering the similar services as there are no significant
differences in the products offered. So the consumers may differentiate
them by the performances of the airline companies. The performance
of the airlines may consist of the staff service, aircraft performances
and accuracy of takeoff time.
3. Relative price The prices offered at airline tickets may not be fixed by
the airline companies. If you book the flight at earlier time, the price
may be cheaper. Some of the premium airlines like MAS or SIA will
offer a lower fare tickets for the consumers last minutes purchase. And
the price may be equivalent with budget airlines such as AirAsia. Thus,
consumers may switch to the premium airline which could provide
them with better and comfortable facility.
Bargaining power of buyers
1. No significant product differentiation. Every airline provides similar
services to its consumers while the only difference between AirAsia
and the other airline companies is the holiday packages offered. They
offer holiday packages which include flight tickets, accommodations
and traveling guides. For consumers who are not interested in the
travel agencies may prefer AirAsia travel packages. But the portion is
smaller. Thus, the bargaining power of the buyers is stronger as the
purpose they look for is to travel to their intended destinations.
2. Low switching costs The bargaining power of the buyer is high if the
cost of switching to the other airlines are low. This is because the
prices offered by other competitors are relatively same; hence the
customers will choose a more convenient flight schedule that suits
them the most.
3. Customer budget allocation - For the business travelers, it does not
affect much on the airline. For the leisure travelers, mostly travel
depends on their earning allocation on travel. Consumers with higher
budget allocation on travel will tend to be more flexible with the price,
on the other side people with small allocation are more price sensitive.
So the bargaining power of buyers is strong.
Bargaining Power of Suppliers

1. Concentration of suppliers in a few hands The power of suppliers is

quite high due to limited suppliers in the market. There are two
options, which is either Boeing or Airbus. The other suppliers like fuel
supplier, merchandise supplier, or food supplier may depend on the
market conditions.
2. High switching costs. The Switching cost is high. Previously, AirAsia
was supplied by Boeing and now replaced with Airbus model due to
the lower maintenance. AirAsia relies more on the Airbus engineer for
maintenance and seek for advice. Thus, the power of suppliers are
stronger.
3. Relative lack of importance of buyers to supplier. Airbus in UK
supplier for major airline company. Their consumers come from all
around the world. Air Asia is only but a small portion of Airbuses
consumers who order 200 aircraft. The total of order of Airbus is 9,113
aircraft. Air Asia contributes only contributes 2% of Airbus total order.

SWOT
Strengths
1. AirAsia is the low-cost carrier leader in Asia. It has operations in over 25
countries and over 400 international and national destinations.
2. Air Asia has a very strong management team with strong links with
governments and airline industry leaders. It help Air Asia to open up
diversify market and purchase airbus with cheaper price.
Weakness
1. Huge investment is one of the weakness parts for AirAsia due the high
operating cost for purchase aircrafts and executing latest technologies.
2. AirAsia cannot operate the longer flight duration without any frill. No frill
flight will become impossible to implement for passengers.
3. AirAsia receives lot of complaints from customer due to the limited service
offered. For example, complaints about the flight delays, be charged a lot
of extra service and does not modify the flight or get a refund if the
customer unable to fly.
Opportunity

1. Low fare tickets which offered by AirAsia encourage more people afford to
fly, moreover the increasing of population of middle class in Asian country
such like India and China also provide a bigger market and opportunity for
Air Asia.
2. The increasing of oil price also another opportunity because AirAsia as a
low cost leader in airline industry provide the lowest air fare among other
airline. It is an opportunity to gain more customers.
Threat
1. There are more no-frills airlines may take off in Asia in order to meet the
numbers of customers increasing following with the success story of
Malaysias budget airline AirAsia. , Passengers may not choose AirAsia if
they need to travel long duration thus, passengers may choose the airlines
such as SIA or MAS which provide the better service. The increasing of
fuel and labor price is one of the threats for Air Asia which will affect its
profit margin.

Conclusion and Suggestion

AirAsia is a successful low cost strategy company. By studying PESTEL, SWOT
analysis and market analysis, it can be said that AirAsia success to create
competitive advantage for the company business policy and strategy. Providing
customers with quality products and services with low fare is synonymous to the
AirAsia brand. In order to maintain a leading position in the market to provide

customer service, AirAsia has to re-evaluate their current strategies. Suggested

improvements can be summarized as follows:
1. AirAsia should be subject to appropriate technical and feasibility study
report of any significant change in their strategy, in order to avoid
unnecessary risks.
2. Oil prices are an important factor to low-fare airline. Therefore AirAsia
should build good relationship with supplier in order to get long term fuel
supply.
3. AirAsia should consider environmentally friendly operating systems, such
as carbon offsets to preserve the environment.
4. Customer satisfaction in terms of services which provided by AirAsia is
low. Air Asia should improve its services.

References
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http://www.airasia.com/ph/en/about-us/ir-about-airasia.page

AirAsia. (2015b). AirAsia Mission, Vision & Values. Retrieved from AirAsia
Mission, Vision & Values: http://www.airasia.com/sg/en/aboutus/airasia-mission-vision-values.page
AirAsia. (2015c). Awards & recognition. Retrieved from Achievements:
http://www.airasia.com/sg/en/about-us/awards.page
AirAsia. (2015d). Strategy. Retrieved from Strategy:
http://www.airasia.com/ph/en/about-us/ir-strategy.page
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