General External Environment
In 2005, the total population in Asia stands at more than 3.5 billion. The United Nations’ statistics also show that Asia has an astonishing demographic dividend – where more than 35% of its population is below the age of 25 and more than 55% hovers below the age of 35. This indirectly means that the increasing large population of the middle age group equates to a larger working age population with more disposable income and thus the likelihood of more business and leisure travels is almost confirmed. This thus presents another golden opportunity for AirAsia.
Although, economic downturns (e.g. global financial crisis) would result in a downturn in the industry, it can prove to be an opportunity for AirAsia. For example, as a result of the global economic downturn (i.e. worldwide stock market plunge), aircraft leasing costs were reduced by about 40%; creating an environment with lesser competition and enabled AirAsia to lease their aircraft at a cheaper rate (leading to cheaper ticket prices for customers). But the threat facing by Airasia is fluctuating oil prices would have an impact on operation costs when fuel prices are too high. Yield and profitability would decrease for AirAsia if fuel prices become too high. Overall, although such economic events are unavoidable, the opportunities outweigh the threats, presenting AirAsia opportunities to expand its business: during times of economic downturns, demand for affordable low fares would increase amongst budget-conscious travelers, especially from leisure and corporate travelers.
Globalization saw a trend of increased privatization and deregulation of governments across the world, which resulted in the ongoing consolidation of the airline industry. As governments were important drivers of airline success in Asia, most airlines in East and Southeast Asian countries had full or substantial state ownership, management, and control, often subsidized and protected by the governments from competition; with the pursuit of non-business goals, profits were often sacrificed for the sake of national objectives. Privatization and deregulation of governments presented opportunities for new routes and airport deals through open-skies agreements between countries, or the permission of the entry of private airlines, reducing the constraints for international airlines. For instance, in 1997, Malaysia signed an “open-skies” agreement with the United States; such deregulation present new airlines (i.e. AirAsia) with the opportunity to access domestic routes. Having access to domestic routes could lead to the trial of long haul flights to attain and penetrate an undeveloped market share (i.e. new routes to utilize its new aircraft). However, globalization can also result in global uncertainty (i.e. accidents, terrorist attacks, and disaster), which can affect customer confidence. Once customer confidence is affected, AirAsia would face the threat of losing its profitability, or even bankruptcy. Being a low-cost carrier, AirAsia is subjected to subjected to aviation regulations, government policy and government restraints (i.e. government protection in favor of full-service airlines), and dependent on the geography and infrastructure of Asia, and the travelling preferences of customers.
In recent years, rapid economic growth resulted in a burgeoning middle class within Asia’s large population. Together with increased in trade and tourism within and into Asia, demand for air travel increased; more people were willing to compromise on food and other services in exchange for lower prices. The attractiveness of budget airlines is primarily their low ticket prices, which can be as low as 10-20% of those charged by full-service airlines. This presents AirAsia with opportunities to differentiate itself from competitors by adding customer services or operation as full service airline with low...
Please join StudyMode to read the full document