Air Asia: Strategic Management Report

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Air Asia: Strategic management report

Air Asia was founded in 1993 and has since grown to be one of the biggest airlines in the world. It initially operated in Malaysia and currently operates in over 25 countries (Ricart and Wang 2005). It began operations in October 1996, operating out of Kuala Lumpur as its central location (Ricart and Wang 2005). The airline was bought by Tune Air in 2001 for one ringgit, the equivalent of 0.26 US cents, at a time when the company had $10.5 million debt (Ahmad 2010). Tune Air comprised of three initial Malaysian investors, Tony Fernandes and Connor McCarthy (Ricart and Wang 2005). With Fernandes, a former Time Warner executive, at the helm, and McCarthy, RyanAir’s former director of operations, the business almost immediately eradicated the debt with ambitious CEO, Fernandes, implementing aggressive low cost systems throughout the organisation(Ricart and Wang 2005). In October 2004, AirAsia attracted over $200US million in capital through an initial public offer (IPO) in shares (Ahmad and Neal 2006). In 2009, a year when most airlines made considerable losses due to the financial crisis, AirAsia posted a profit of $161.1US million, highlighting their ability to perform in testing market conditions (Unknown 2010). In 2009 they also finally negotiated with Sydney Airport to begin flights with initial costs to be offset by moving into the cargo carrying market (Bruce 2009). The low cost structure of Air Asia is entrenched in the organisation in their mission statement, which is to “To continue to be the lowest cost short-haul airline in every market we serve, delivering strong organic growth through offering the lowest airfares at a profit” (AirAsia 2011), and their vision statement “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 2011).. The industry for low cost carriers (LCC’s) in Asia is highly competitive. Currently operating in the Asian market are Valuair, Air Asia, Tiger Airways, Jetstar Asia, Air Deccan, Lionair, Nok Air and Orient Thai (Treitel 2004).

Recently the industry in which Air Asia operates has undergone several challenges. The Asian political landscape in the past has been particularly fragile with regards to the “open skies” agreements (Unknown 2008). Currently this is one of the more pressing issues in the region. The deregulation and liberalization of the area will provide massive opportunities for LCC’s in the region as new routes become available (Wensveen 2010). In the US, price competition since 1978 has forced the legacy airlines to cut back drastically on their costs (De Neufville 2008). Since then Australia, Canada, Europe, and Asia have all undergone similar deregulation (De Neufville 2008).

With fuel comprising a large percentage of the costing of a ticket, rising fuel prices will pose a significant challenge to the industry. Rising fuel costs, as well as the emergence of low cost carriers in Asia and around the world has forced airports to reinvent themselves, as well as providing opportunities for smaller regional facilities (Parkinson 2005). An example of this replicated throughout the world is similar to Melbourne Airport which has a separate terminal for Tiger Airways, which remains separate from the main terminal. These secondary terminals are specifically designed to improve on cost efficiencies.

This report aims to firstly analyse the external environments Air Asia operates in, as well as conducting an internal analysis. Using this information the report will then move to analyse the strategies currently implemented by Air Asia and then recommend potential improvements which could be made to these strategies.

External Analysis
The Macro Environment
The macro analysis in this report will be used to analyse and identify the forces around the globe which are out of Air Asia’s control. When analysing the strategies...
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