Air Asia

Topics: Airline, Low-cost carrier, Malaysia Airlines Pages: 5 (1531 words) Published: July 14, 2010
1.Threat of new Entrants
The extent of barriers to entry depends on the strength of-
i)Customer has little brand loyalty. If consumers of Airasia do not have brand loyalty, then the strength of the threat of new entrants is very high. The high numbers of competitors in the industry also decrease Airasia’s customer loyalty. Most of the travelers prefer low cost. New competitors which want to come in the industry have to spend little to compete with Airasia.

ii)High capital requirement. The industry of airline needs large volume of start-up capital. The cost of setting up of offices, buying or leasing aircraft, hiring pilots and other staffs like air stewardess and etc incur a high start-up cost. Thus, the threat is low for Airasia.

iii)Different product offered. Airasia offers different product compared to other competitors in Asia like Bangkok Airways, Tiger Airways, and Air Philippines. Other than the passenger sales ticket, Airasia also include holiday packages which is affordable around Asia. Airasia has good connection with hotels and tourism companies around Asia, which it is hard for new competitors to compete.

iv)Low switching costs. Customers do not need to spend more on switching to another airline. The price would not be very significant in differences, which it depends on the availability of competitor’s services and suitability of the flight time that prompts them to switch.

v)Moderate access to distribution channel. Airasia is the first airline company to enable customer book and purchase air tickets online in Malaysia. This makes its website very famous among frequent travelers. Although new competitors can create a website for their company, it is quite difficult to compete with Airasia’s website. The website is known of its simplicity and user friendly. Thus, new competitors are difficult to make known their websites to travelers.

vi)Strict government regulations. In obtaining license and permit to operate an airline company is quite restricted. This is because in Malaysia, the airline industry is very competitive already and that the government also wants to protect the interest of its national airline, MAS which is operating on loses a few years back.

2.Rivalry among existing firms

The strength of this factor depends on:

i)High numbers of rivals. There are approximately 59 low fares and no frills airlines compete with Airasia. Among of them are Tiger Airways, JAL Express, JetStar Airways, Air Arabia and etc. Some of the airline does not compete directly with Airasia, but it competes indirectly in routes that Airasia does not fly. Thus, the higher the number of competitors, the more fierce the competition.

ii)High fixed cost. The airline industry incur high fixed cost which consists of finance cost, hire purchase, and staff costs. The airline companies have to gain more market share to cover the fixed costs. In doing that, constant price reduction is done by them to compete with others. Thus, the rivalry is strong.

iii)Customers easily switch. The nature of airline industry is that customer’s priority is to look at price and flight schedule that suits them the best when buying air tickets. The main purpose of using the airline services is to get to the destination intended. Customers can switch to other airline easily which makes the industry so competitive.

iv)High exit cost. It is hard for an airline company to exit the industry. It is because the cost is high in paying the loans, staff retrenchment and flight cancellation refunds. Even making losses, the companies have to get running to cope with fixed costs. This makes the industry very competitive.

v)Products are similar. As mentioned earlier, the main purpose of using airline services is to reach the destination. Every airline provides similar services to customers. Though Airasia provides other added services like hotel booking, and tour packages, it is subject to the customer’s...
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