Air Asia's Strategy

Page 1 of 4

Air Asia's Strategy

By | April 2009
Page 1 of 4
{draw:frame} MGMT102 - Strategy Term Project An In-Depth Analysis into AirAsia Team Members: Arlianawati Binte Abdul Rahman Bek Wei Da Edmund Lee Jing Yang Loo Wen Xiang Seah Suat Peng Serene Yeo Kok Wee Eugene Table of Contents 4.6.4 - Threats Fuel Cost AirAsia’s ability to increase profitability is largely dependent on how well the group succeeds in maintaining cost-efficient operations. Price of jet fuel has increased to levels that only two or three years ago would have seemed impossible. This will result in increase in cost as fuel represents a huge portion of the costs of an airline industry. However, a portion of this threat has been mitigated due to its procurement of A320, which is more fuel-efficient. However, this threat should not be neglected and the costs of fuel should be keep tracked closely. Financial Risk AirAsia is also exposed to a numbers of risks related to liquid funds, trade receivables, borrowings, commodities and derivative instruments. The group employs a wide range of financial instruments to manage these risks. AirAsia’s exposure is especially great as 70% of operational costs are USD linked. AirAsia tries to reduce this threat by constantly looking for opportunities to hedge more aircraft and to hedge receivables. Regulations AirAsia’s success is subject to various regulatory approvals. Changes in interpretation of current regulations or introduction of new laws or regulations will have a adverse impact on the company. Geographical AirAsia is subjected to risks associated to each country it serves. This geographical risk exposure will be reduced as AirAsia continues to expand its network and diversify the revenue stream to a wider market. {text:bookmark-start} {text:bookmark-end} 5 ' Issues & Recommendations {text:bookmark-start} {text:bookmark-end} 5.1 - Type of Customer AirAsia derives almost 100% of its revenue from regional leisure travelers. In poor economic climates, such customers might hold back their...