Aviation, an industry where it is full of fluctuations, has always been affected by various factors. It is not uncommon to see aviation-related companies keep changing their own strategies to make ends meet. Overall the air industry in Asia has continuously growth recently and maintains a high level of ranking. Among the explosive growth in budget airlines market, Air Asia is obviously the typical example for further study with the most fleet sizes and destinations. Air Asia was founded in 1993. There are now 57 Airbus serving 79 destinations where the passenger load factor in 2011 was 76%. Winning the Skytrax World’s best low-cost airline in the previous three year consecutively, it is well-known for its low-fare under the world’s lowest operating cost. With the increasing fleet size and capacity of seats, the average load factor had once been push up to 80% recently. Its positive performance has brought a strong direction to its future growth.
The core competences of a company should focus on satisfying customers’ requirements by adopting any business-level strategy which may provide value to consumers and present its competitive advantages. In terms of business-level strategy, there are mainly four different strategies including cost leadership, differentiation and hybrid and focus strategy. Firstly, cost leadership, as the name implies, maintaining low cost by tight control over production and overhead costs so that the company may compete for a wide range of consumers based on price. Putting continuous effort on lowering cost can lead a firm successfully be a cost leader. Air Asia is a typical example that further explanation will be made as major focus of the essay. Secondly, differentiation comes from unique characteristics and features of its product such as high quality of customer service, advanced technological features. For example, Cathay Pacific provides different types of services. While in some long-haul flights, it sets higher price for those seats with more leg areas where service quality can be enhanced. Thirdly, hybrid strategy is a combination of low cost and also with some differentiation measures. JetBlue Airways uses hybrid with low cost and frills such as seatback live satellite television and leather seats. The last one, focus strategy, is not solely compete based on price or differentiation, but only select a particular market segment to provide goods or services. Just like Singapore Airlines, it focuses on first and business class market segments with provision of more flight attendants per passenger and offer more channels for in-seat TVs.
Focused Cost Leadership Strategy of Air Asia:
Being the low-cost provider in the aviation industry in Asia, a set of strategy are integrated with the provision of services or goods which the costs should be contained to the lowest relative among industry rivals. While selling its products and services below the average prices, it would be beneficial to gain market share. Not only does Air Asia put its business strategy on low-cost leadership, but it also target specific market segments which are those price sensitive customers with a need in short-haul flight. That is why focused cost leadership strategy can be seen. In the following, sorts of points will be presented to showcase how these integration can facilitate Air Asia being a cost leader among budget airlines in Asia.
1. Unifying One Aircraft Type
Substantial cost savings can be made upon operating one single aircraft type A320. Large purchases on A320 aircraft may build up a close relationship with Airbus company hence better discounted price can be negotiated. Single aircraft type also enables simplifying the maintenance procedures while the cost can be reduced. Spare part inventories, infrastructure and equipment can be minimized. With the same operating procedures, training costs for crew and pilots can be lowered. Moreover, with...