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  • Topic: Airline, Low-cost carrier, Porter generic strategies
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  • Published : March 7, 2013
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The Treat of New Entrants
The unparallel success of AirAsia had stimulated many LCC to enter the market in its region, some of which are large full-service airlines' subsidiary companies. Knowing that the new-comers would copy its low cost strategy, AirAsia introduced a series of unique services. For example, it was the first airline in Malaysia to allow online check-in. What's more, it offered more choice for those who wanted to pay more for convenience, such as the Xpress boarding service and the Real Five Star service as well as economic choice for those who carried less baggage(Cite the HBS Case), i.e. the introduction of checked baggage handling fees. In addition, Air Asia became a pioneer to launch the "on-time guarantee" feature among other LCCs, which enormously increase its credibility and reputation. Apart from that, AirAsia was also the few of its kind什么意思(第一次实行?) to operate long-haul service, including the flight to Australia Gold Coast and London. Other LCCs who intent to copy the strategy failed as can be seen the case of Jetstar due to the rising oil price. The reason why AirAsia successfully operates the long-haul service might be that it collaborated with many local LCCs to bring down the cost. While being exposed to fierce competition caused by more and more new entrants, AirAsia decided to move from a traditional LCC which simply sells flight tickets to an "integrated service provider" which provides travel related services. In order to keep its low price advantage confronting the surging oil price, AirAsia chose the "dynamic, layered-hedge strategy" to compensate its fuel cost. Its low cost advantage is so competitive that it can reach a break even with only 56% passenger load, which other companies found hard to catch. Consider one of the five forces raised by Porter, AirAsia enjoys an absolute cost advantage owed to the superior productivity of its staff, its fuel efficiency, the low overheads and its wise choice of the distribution channel, which all contribute to a barrier that prevents new entrants to imitate. Supplier Power

According to Porter's five forces model, the supplier's power is determined by the degree of competition among suppliers, the switching cost to another supplier, the integration power of the supplier and buyers' power. To view the airline industry as a whole, aircraft manufacturers, oil suppliers, airports and the on board foods and goods suppliers comprise the main suppliers to the industry. The suppliers' power is considerably high since the aircraft manufacturing industry is high-tech demanding and concentrated, with Boeing and Airbus dominate the major market. Airline companies do not have many aircraft models to choose from so the aircraft manufacturers take the initiative in bargain. This is especially true for AirAsia. In order to achieve the low cost goal, AirAsia decided to buy more fuel-efficient Airbus A320 which made it the largest Airbus A320 operator in the Asia-Pacific area (Ko, 2009). In this case, Airbus enjoys a bargain advantage over AirAsia. In addition, the switching cost for AirAsia to choose another aircraft supplier may be high since the dominate aircraft manufacturers will make a significant price gap to prevent customer loss. In terms of the on board food and goods suppliers, AirAsia has relatively high bargain power over them because there are various suppliers in this sphere and AirAsia can make a choice that best fits its low cost strategy. When airport is regarded as a supplier, its power mainly depend on its passenger flow, infrastructures and location. Since AirAsia chose budget terminals or second tier airports for its flights (Ko, 2009), those airports have low bargain power against AirAsia unless many other airlines also choose them as hubs. Strategy Analysis

Generally, AirAsia follows a low cost yet high quality strategy to earn the highest margin and sustain growth. It has developed a few sub-strategies to support the main...
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