Case Study: Air Asia

Topics: Airline, Flight length, Aircraft Pages: 5 (1633 words) Published: December 3, 2013
Problem Statement
AirAsia’s attempts to expend its service offering into long-haul flights and gaining additional recognition and market share is consistent with owner Tony Fernades’ company goal; however, the strategy changes required to be a successful long-haul airline significantly differ from and conflict with its current resource base (i.e. aircraft types, hubs, employee skills) and core competencies and capabilities (i.e. cost and efficiency optimization/utilization) as a low-cost carrier (LCC) airline. Analysis

The airline industry as a whole is quite competitive with multiple players and various elements effecting the industry environment. AirAsia has developed a specific set of resources and core competencies that it has exploited in order to become the leading short-haul LCC in South East Asia. AirAsia’s strategy employs cost and efficiency optimization by utilizing its key resources; thus, possessing capabilities necessary for success.

AirAsia’s tangible resources, including its fleet and hubs, enhance the company’s low cost capabilities. Due to AirAsia’s selectivity in the type/model of aircrafts it purchases, both cost and efficiency can be capitalized. By limiting the variability in aircrafts, AirAsia is able to obtain economies in purchasing, its pool for spare parts is narrowed, thus reducing costs; mechanics and pilots’ specialized knowledge of the planes increases allowing for greater efficiency and reduced cost in maintenance, repairs, and flying. Although this strategy is ideal for AirAsia as a short-haul LLC, it is not transferrable to long-haul flights. By expanding into the long-haul market, AirAsia is required to increase its resource base adding newer, larger aircraft models in turn requiring expansion of spare parts, loss of purchasing economies (until sufficient growth has been achieved), additional training and loss of specific specialized knowledge possessed by pilots and mechanics resulting in increased costs and reduced efficiencies. AirAsia’s expansion and growth has resulted in adding hubs in densely populated South East Aisan cities. However, as a cost savings measure AirAsia utilizes secondary airports resulting in a competitive advantage. This strategy is transferrable to long-haul flights; however, it is reasonable to presume (based on AirAisa’s proposed expansion plan on page 628) AirAisa’s long-haul flights will be required to fly into larger international airports and lease terminals in order to accommodate customers’ needs, thus increasing costs. Additionally, further risk revolves around the fact that expansion into long-haul flights would result in a significant increase in competition with reputable and established global airlines. Furthermore, such expansion places AirAsia in direct competition with government backed Malaysian Airlines (pg. 627). Although the idea of expansion into long-haul international flights is appealing, the risks involved with intense industry competition as well as the unsustainable low cost strategies should be a deterrent to AirAsia’s long-haul expansion. Additional conflicts exist between LCC strategies and long-haul success factors. AirAisa has thrived as an LLC based on the reduction of extrenious costs, thus an elimination of “frills” or amenities. The “no frills” strategy is very sustainable for short-haul flights (under 3.5 hours) because customers’ needs are minimal and therefore expectations are met, meanwhile adding superior customer service to the mix flyers leave very satisfied. However, on longer flights, lack of “frills”, amenities and comforts may result in flyers’ negative perception of the airline. Although a flyer may initially believe a low cost, long flight with no amenities is palatable, it is likely the flyer will end up dissatisfied with lack of options while in the air; again a low cost strategy that is unlikely to remain sustainable in the long-haul market. With AirAsia’s implementation of point-to-point flights,...
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