Value Chain Analysis - Airasia

Topics: Low-cost carrier, Costs, Strategic management Pages: 9 (2200 words) Published: April 5, 2011
Value Chain Analysis of AirAsia
The value chain analysis is used to evaluate the value of each particular functional activity that is added to the organisation’s products or services as seen in Diagram 1 [pic]

This involves all areas of receiving, storing of inputs when producing outputs. So far, AirAsia only operates on a single type of aircraft, the Boeing 737-300. Based on a report published by Aero Connections in 2004, that particular model was the best selling commercial jet of all times due to its efficiency and cost effectiveness. AirAsia also has 1382 employees and they received proper on-the-job training workshops so that they can perform multiple roles effectively within a simple and flat organisation structure. b)

It processes inputs to provide valuable products/services. AirAsia has always been stringent about standards and procedures. AirAsia is aware that maintaining its passenger safety is of paramount importance – as indicated in the surveys in the United States and Japan. Based on the company’s 2003 annual report, AirAsia had joined ventures with GE Engine Services for a business alliance that allows the latter to be in charge of maintaining all AirAsia’s aircraft engines in the next five years. AirAsia had also managed to achieve good operating benchmarks in terms of flights on time and baggage handling where in 2004, the company registered 88% and 99.9% respectively. c)

Outbound Logistics
This involves delivering products/services into a distribution channel or to the final destination. As of late 2005, AirAsia operated 32 Boeing 737 aircraft that run over 60 routes across Southeast Asian regional network. Not only that, its aircraft interiors are also outfitted with signature red carpeting and plush leather seats to enable its guests to travel comfortably. In addition, it was also reported in prominent journals and magazines such as ABJ and AWM that many customers felt that AirAsia’s cabin crew demonstrated professionalism when carrying out their duties on air.

Marketing and Sales
It involves all activities that inform customers about their products/services; including those that induce and facilitate customers in making purchases. So far, AirAsia has promoted its company without incurring high sales and marketing expenses. For instance, its CEO Tony Fernandes always wears a red AirAsia baseball cap in any of his interviews. His well thought out statements often reinforce AirAsia’s positioning as a small entrant firm battling against giant industry incumbents that also offer low prices. As such, when required, it also invested heavily and so far, its major sponsorships included being the “Official Low Fare Airline” for football giant Manchester United. This deal involved global sponsorship and advertising.

ServiceAirAsia is one of the few airlines that had the shortest turnaround time, around 25 minutes as opposed to 45 to 120 minutes recorded by other airlines. Hence, this allows AirAsia to benefit from conducting more flights a day. Besides that, AirAsia emphasises a lot on maintaining a high quality service to all its passengers such as punctuality rate and excellent baggage-handling performance

The summary of strengths and weaknesses of AirAsia is appended in Table 1 below: Strengths

Low cost operations.

Fewer management levels, effective, focused and
aggressive management.

Simple proven business model that consistently
delivers that lowest fares.

Penetrate and stimulate to potential markets

incentivised workforce.

Single type fleet minimise maintenance fees and
easy pilot dispatch.

Service resource is limited by lower costs.

Limited human resources could not handle
irregular situation.

Heavy reliance on outsourcing.
Table 1: Summary of AirAsia’s Strengths and Weakness
Success Factors of AirAsia
As AirAsia continues to compete with other LCC (both existing...
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