The objective of this report is to analyse and evaluate Air Asia’s strategic position as at December 2008. Internal and external analysis will be performed to analyse strategies that have been adapted to date by Air Asia. The report also discussed on how Air Asia’s capabilities and competencies created competitive advantage as well as how value chain created value for them. The information will be based on its Annual report of 2006 to 2008, case study and website. 1.2
Identification and nature of Air Asia
Air Asia Air Asia was established in 1993 and started its operations in 1996. It was originally founded by a government-owned conglomerate DRB- Hicom. The vision of Air Asia is to be the largest low cost airline in Asia and serving the 3billion people who are currently underserved with poor connectivity and high fares. (Air Asia Annual report, 2008) 1.3
Air Asia’s main competitor is Firefly which is the subsidiary of Malaysian Airline System Bhd. Other competitors would be Malaysian Airline System Bhd, Tiger Airways Pte Ltd and Singapore Airlines Ltd. 1.4
Strategic Business Units (SBUs)
Air Asia’s main strategic business units are Thai Air Asia, Indonesia Air Asia, VietJet Air Asia, Air Asia RedTix and Air Asia X. Each of these business units covers different destinations both local and international.
The financial performance will involve analysis of solvency, profitability, investor’s ratio, liquidity ratios and analysis of revenue growth. The analysis will be focused on the trend of 3 years period. Trend analysis is done to provide signals as to whether the company’s health is likely to improve of deteriote. 2.1
Revenue growth is a useful measure of how fast a company’s business is expanding. Based on the Appendix 3, revenue growth showed a positive upward trend for all 3 three years but there was a slight dip in year 2008. This was due to termination of certain underperforming route. (Air Asia Annual Report, 2008) However, Air Asia has shown a continuous increase of revenue for all three years. One of the reasons which made this possible was the domestic route rationalization arrangement with MAS. Under this arrangement, Air Asia has taken over more than two thirds of MAS’s loss making domestic routes. 2.2
Net Profit Margin
Air Asia has recorded a continuous increase in net profit margin except in year 2008. This is due to increase in fuel prices which has hammered the airline industry. However, Air Asia has managed to survive this by opting for a dynamic layered-hedged strategy to pay the fuel in advance and to qualify for low prices which will be beneficial in the long run. (Air Asia Annual report, 2008) 2.3
Based on the Appendix 3, it shows that Debt/Equity ratio has been increasing over the three years period. This was due to increase of borrowings to support its rapid expansion of purchasing air fleets.
The current ratio measures whether or not a firm has enough resources to pay its debts over the next 12 months. Appendix 3 shows that Air Asia has recorded continuous decrease in current ratio. This was due increase in current liability which comprises of the borrowings done to support the rapid route expansions. 2.5
Earning Per Share (EPS)
EPS is defined by the portion of a company’s profit allocated to each outstanding share of a common stock. (Investor words, n.d.) Year End
Profit after taxation and Minority Interest
-496,563 Weighted Average number of Ordinary Shares Outstanding During the year
2,353,379 Basic Earning per Share
Table 1: Earning per share
The company recorded a downturn in the EPS trend in 2008. This is because, there has been decrease of earnings made and this is evidenced by the drop of net profit margin. As seen from the Table 1,...
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