Air Asia Company Analysis

Accounting & Finance TP 023513 UC1F1007BMP (AF) Utari Asmelia Introduction of Management 08 Fall AirAsia Company Analysis Background of AirAsia Company Dato’ Tony Fernandez was the entrepreneur that brought up AirAsia to be the one of the award wining the largest low fare airlines that is currently well known for now in Asia. Since then it has been flying to over 61 domestic and international destination with 108 routes, and furthermore it operates over 400 flights daily from hubs that are basically located in Malaysia, Thailand and Indonesia.Today if we look at their progress, AirAsia has flows over 55million guests across the region and continues to create more extensive route network through its associate companies. The company AirAsia furthermore belives in the no-frills, hassle-free, low fare business concept and feels that keeping costs low requires a specific element of high efficiency in every oart of their business. So, as we know, through the corporate philosophy whi ch stands that â€Å"Now Everyone Can Fly†.AirAsia Berhad is a Asia’s aeroplane largest low-fare, no frills airline and a pionner of low cost travel in Asia. AirAsia group operates scheduled domestic and international flights to over 400 destinations already spanning 25 countries. Its main hub is the Low-Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport. Its affilate airlines Thai AirAsia and Indonesia AirAsia respectively. AirAsia won the Skytrax World’s best low-cost airline award in 2009 and 2010. It has the world’s lowest operating costs at $0. 35/seat-kilometre in 2010. It is also the first airline in the region to implement fully ticketless air travel system. THE HISTORY OF AIRASIA CO. AirAsia was established in 1993 and commenced operations on 18 November 1996. It was originally founded by a government-owned conglomerate DRB-Hincom. On 2 December 2001, the heabily-indebted airline was purchased by former Time Warner executive Tony Fernandes’s company Tune Air Sdn Bhd for the token sum of one ringgit. This was after great deliberation was the initial offer was fifty sen.Fernandes proceeded to engineer a remarkable turnaround, turning profit in 2002 and launching new routes from its hub in Kuala Lumpur International Airport at breakneck speed, undercutting former monopoly operator Malaysia Airlines with promotional fares as low as RM 1 (US$0. 27). MEGA ENVIRONMENT i) International Elements Based on the history of these company, on August 2006, Airasia took over Malaysia Airlines’s Rural Air Service routes in Sabah and Sarawak, operating under the FlyAsianXpress brand, the routes were subsequently returned back to MASwings a year later citing commercial reasons.AirAsia’s CEO Tony Fernandes subsequently unveiled a five-year plan to further enhance its presence in Asia. Today, AirAsia has strengthen and enhance its route network by connecting all the existing cities in the region and expanding further into Indochina, Indonesia, Southern China (Kun Ming), Xiamen, Shenzen) and India. The airline focused on developing its hubs in Bangkok and Jakarta through its sister companies, Thai AirAsia and Indonesia Airasia. Hence, with increase frequency and addition of new routes, AirAsia expects passenger volume to hit 18 million by end-2007.Now, AirAsia has some pathways and more wide network. For demography sectors, AirAsia has more than 558 million inhabitants (ASEAN countries) and over 3 billions with China and India. ii) Economic Elements AirAsia Economic Analysis A successful example of a Malaysian no frills airline is AirAsia. Revolutionized and Reinvented by Tony Fernandez in 2001, like I told before it is based on the low-cost, no-frills model of the US carrier Southwest. The concept of AirAsia is based on the belief that demands for short-haul air transport is price flexible.That means, if prices for flights are being reduced, more people will fly. Traditionally, airline concepts are based on the assumption that airline traffic grows in line with the economy and that cutting prices will only lead to a decrease in revenues. With the introduction of the ‘no frills’ concept to the Malaysian market, AirAsia has proven this theory wrong and goes from strength to strength by actually increasing the size of the market and more recently by taking away passengers from the major airline competitors.With its expending strategy as objectives to reach excellent standard around the world, marketing in Asia has been the key player to achieve success. AirAsia is one of the business that have successfully adopted cost leadership through operational effectiveness and efficiency. The cost advantages have enabled AirAsia to become the Asia’s leading low fare airline. AirAsia has successfully positioned itself in customer’s mind. Its net profit for the second quarter ending 31 December 2004 was reported RM 44. 4 million, a 323% increase over t he previous quarter.AirAsia until today has flown more than 55 million passengers in and around Asia. AirAsia has also ventured into other market that complemets with the airlines business. It has started franchises like the tunes hotels and red box couriers to gain maximum efficiency in and around the airline business. There’s economic aspects which AirAsia did: * AirAsia holds 49% of Thai AirAsia with 1% held by a Thai individual. The remaining 50% is held by Shin Corp. , owned by the former Thailand prime minster, Thaksin Shinawatra. Shin Corp. as financial strength, synergy in information technology and telecomunications, which support AirAsia Internet and mobile phone bookings. * National Trends: Malaysia’s economy may expand as little as 4 percent in 2009, growth will probably be between 5 percent and 5. 5 percent this year, below the official 2008 forecast of 5. 7 percent. * Real GDP % Growth forecast is from 5. 1 in 2008 to 1. 4 in 2009. * The inflation rate ma y fall below 4 percent before the second half of 2009 * Unemployment has remained constant at an average of 3. 6% in July 2008 to 3. 1% in Oct. 2008.However, the global credit crisis has raised fears that â€Å"the unemployment rate could double to 6 per cent by 2010 if global demand remains weak†> * International trends: * Malaysia ranks 20th for its ease of doing business out if a total of 181 economies surveyed in the World Bank Doing Business 2009 report. * International global credit crisis has resulted in increasing unemployment and ‘global trade will shrink by 9 percent this year’ * Asian governments are defending less national-flag carriers; in order to revitalize under used airports and increase tourism spending. ii) Technological element AirAsia Company has also used technological sectors to improve their quality work and give best services for all customers. If we can look at advertising side, AirAsia used information technology to make customers easy find the flight they wants. AirAsia has also used Online-Booking System to buy or just booking for flights. It has good way promotion and offers with the low-price surely, some information we can accessed as soon. All the things we need, we just can booking first such as foods and drinks, also available on during our flight.With this strategic move, AirAsia is able to focus on the factors that actually bring value to customer, such as point-to-point travel system, easy reservation system, and etc. This will help AIrAsia, reduce the cost and at the same time, increase the value for customers – Value Innovation. It has synergy in information technology and telecommunications, which support AirAsia Internet and mobile phone bookings. ShinCorp. allows subscribers of the Shin mobile phone flagship, Advanced Information Service, being able toreserve tickets through its short-messaging service (SMS).In aeroplane cabinet, AirAsia was used Airbuss, Boeing, ATR and others sizeable for flight. Technological aspect specifics are : * Ticket-less travel and ‘e-tickets’ have lowered distribution costs. * AirAsia has the youngest fleet in Asia with the new Airbus A330-300; allowing state-of-the-art technology and high fuel efficiency. * Information and communications technology (ICT) has allowed AirAsia to reduce operating costs and provide fast, efficient service in areas including: check flight schedules, book seats, electronic check-in, and pre-order meals. New low cost terminal to be opened in Labu, Malaysia by 2011 will incorporate modern technology, more shops and be privately owned, resulting inn lower airport taxes and fares and reduced government bureaucracy. iv) Sociocultural element AirAsia Company creating and developing a social culture takes time and effort and a new motive driven company such as AirAsia has to develop me method on how to connect with the society’s lifestyle , demographics, and media. For lifestyle sectors, AirAsia Com pany has a magazine, we can took at the flight, and their company.If we look at huge views, there’s another socialize point. They are as : * Demographics: * Ethnic: Malay50. 4% Chinese23. 7% Indigenous11% Indian7. 1% Others7. 8% * Religions: Muslim60. 4% Buddhist19. 2% Christian 9. 1% Hindu 6. 3% Other traditional Chinese 2. 6% Unknown 1. 5% None 0. 8% * Languages:Bahasa Malaysia (Official), English, Chinese (Cantonese, Mandarin, Hokkien, Hakka, Hainan, Foochow), Tamil, Telugu, Malayalam, Panjabi, Thai. * Air Asia operates in SE Asia with many countries and languages. SE Asian countries have diverse cultures and religions; troubles continue particularly on the Thai-Malaysian border and Indonesia. * Individualism is less common than cooperation in Asian business values. * Acceptance of laws and rules can vary; many Indonesians, for example, rarely abide to baggage allowance rules and these rules are seldom enforced due to corruption and indolence. * Urbanization: 7 out of the top 10 most populated cities in the world (>14 million) are predicted to be in Asia by 2015, according to the UN. Over 80% of AirAsia’s tickets are sold on-line; thus, eliminating travel agent fees.V) Political elements Political Analysis mainly states about the aviation acts and regulation which needed by aviation company such as AirAsia to operate their business. The political arena has a huge influence upon the regulation of businesses and the spending power of consumers and other businesses. Political stability is inessential to create a safe economy market that enables the market to grow. Political issues may cause problems in the outcome of the company. Some of the political factors that may affect a company are events that affect the operation of the company; therefore regarding an aviation company.It has happens as Air Asia. Air Asia political events will affect the results as well. Political aspects include some points by AirAsia Company. They are : * Political uncer tainty in Malaysia with Prime Minister Abdullah Badawi set to step down in March 2009. * Deputy Prime Minister Najib Razak is expected to take over the ruling-coalition party, but with a cloud of allegations. * Political unrest in Thailand recently when anti-government protesters recently blocked flights for a week at Bangkok’s main airports. * ASEAN nations have been pushing Indonesia to scrap its Rp. million ‘Fiscal’ charge to all Indonesian citizens and expatriates when leaving the Republic of Indonesia either for business, education or tourism. * Resurgence of violence in Southern Thailand – Northern Malaysian border. * Malaysia granted exploration rights in oil-rich waters off the coast of Borneo; increased tensions with Indonesia. * Terrorism has occurred in Thailand and Indonesia, most notably the Bali bomb of 2002. A. WHY AIRASIA NEED TO CONSIDER A STRATEGY MANAGEMENT? The first reason is because the airline industry is a unique and complex industr y.Based on the statement, the complexity and unique of the airline industry, AirAsia need to come out with the greatest strategy to compete with their rival in the same industry. Without the right strategic management, its possible AirAsia could not be able be compete with the complex business environment the airline industry. Furthermore, the second reason why AirAsia need to consider a strategic management because in a company nowadays, general management which the process of achieving organizational goals by engaging in the four major functions. There are : * Planning * Organizing Leading * Controling It may not sufficient and supportive for the organization succed in the world of complex environments. It concerns about the process to manage the company internally but do not concentrate more on creating competitiveness regarding environments affecting the organization. In addition, the third reason, this is because strategic management becomes important in AirAsia due to the foll owing reasons. The first reason why strategic management becomes important is because the globalization. The globalization consideration impacts virtually all-strategic decisions in a company.The globalization also forced AirAsia Company to survival for business. Too see and appreciate the world from the perspective of others has become a matter of survival business. The current issues in AirAsia Company AirAsia Company are more focused in the competition of the cost among an airplane industry. AirAsia as an industry company which is more focusing in the low cost carrier airplane industry need to consider to make the lowest possible cost to compete with the other competitors in their airplane industry. To achieve the lowest possible cost, AirAsia Company has some strategy to achieve it.B. HOW TO IMPLEMENT AND ACHIEVE IT? With there believes to make a low possible fare for to the customer, AirAsia was cbecoming an Airline company that is chosen by so many customers. The best philosop hy of AirAsia ‘now everyone can fly’ means to giving an opportunity to all the people to flight with the lowest possible fare and making them can flight even the only have the less money. Why AirAsia more stressed to be low cost carrier in airline industry? * AirAsia believes to compete in the airline industry, it must be cost-efficient and profitable, and it must create value.Cost that do not add value must contained, reduced and even eliminated. * Demand for low cost carrier (LCC) industry will keep growing rapidly. * And than the best philosophy of AirAsia ‘now everyone can fly’ means to giving an opportunity all the people to flight with the lowest possible fare. AirAsia SWOT analysis The purpose of this analysis are for identify the internal and external factor that AirAsia need to consider to be low cost carrier in airplane industry. There are : 1. Strengths * AirAsia has a very strong management team with strong links with governments and airline ind ustry leaders. The management team is also very good in strategy formulation and execution. * AirAsia’s brand name is well established in Asia Pacific. * AirAsia is the low cost leader in Asia. * The excellent utilization of IT. 2. Weaknesses * AirAsia does not have its own maintenance, repair and overhaul (MRO) facility. * AirAsia receives a lot complaint from customers on their service. 3. Opportunities * There are 2 major events that are taking place now or going to take place in less than 6 months from now. * There is also some opportunity to partner with other low cost airlines. The population of Asian middle class will be reaching almost 700 million by 2010. 4. Threats * Certain rates like airport departure, security charges and landing charges are beyond the control of airline operators. * AirAsia’s profit margin is about 30% and this has already attracted many competitors. * Users perception that budget airlines may compromise safety to keep costs low. In concl usion, the SWOT analysis that AirAsia have is on of the major component to make AirAsia more strength in their business and can make they are able to compete with the same low cost carrier airline industry.The strategy that AirAsia was implementing to make they are being a successful in low cost carrier and can compete with other competitors in this field of business are : 1. Maximized IT and implementing E-commerce in AirAsia business. 2. Operation effectiveness and outstanding efficiency 3. Implemented outsourcing in their business Conclusion : The competition among airplane industries is very tough. Each of Airplanes Company in the world trying to conduct some strategies to compete with another competitor in their industry.To compete with their competitor in the business environment, a company needs to make a strategy to achieve their long terms objectives and can be successful for doing their business. The strategic management becomes important due to the following reason such a s globalization to survival their business, and than e-commerce become the critical success to the company nowadays. A company needs to consider the company ability and how to integrating it with the as well as main factor in the internal and external factor. DO YOU THINK THE CHOSEN ORGANIZATION WILL BE SUCCESSFUL UNDER THE CURRENT LEADER IN THE FUTURE? WHY OR WHY NOT?Absolutely yes, I believe AirAsia Company would be make some progress in the future. Based on the fact we know before, AirAsia Company has a lot achievement and awards until now. AirAsia is one of the leader to Low-Cost Carrier Airlines with its best slogan ‘ Now everyone can fly ‘. It such as, new innovation for business world today’s. Lets look at AirAsia statements for future plan. Forward-Looking AirAsia statements Such forward looking statements are based on numerous assumptions regarding the Group’s present and future business strategies and the environment in which the Group will operat e in the future.The AirAsia’s future overall business development and economic performance : * The Group’s estimated financial information regarding, and the future development and economic performance of, its business. * The Group’s future earnings, cash flow and liquidity * The Group’s potential growth opportunities, including its route expansion plans and potential joint ventures; the amount and nature of future fleet growth 9including the proposed acquisition of up to 80 new aircraft from Airbus or Boeing consisting of 40 purchase obligastions and 40 purchase options), airport investment and other capital expenditures required by the Group. The Group’s financing plans, business strategy, competitive position and effects of competition; the airline industry environment, including future prices and demand for air travel and future prices and supply of aircraft, jet fuel and spare parts * The regulatory environment and effects of the future regula tion, including the liberalization of the commercial aviation industry in Southeast Asia and the effects of future regulation. According to the forward-looking statements by AirAsia Company.It shown that AirAsia Company making some future plan for improve its business. We could look at AirAsia Company Strategic Management running so well. For additionally, if you haven’t really heard much about AirAsia yet, never fear: according to the CEO Dato’ Tony Fernandes, the whole world will be flying AirAsia soon. Fernandes really loves his airline and has huge plans for it. The first low cost carrier in Asia, coming out of Kuala Lumpur, AirAsia has been flying for over 10 years now and is ready to conquer the world.Fernandes dreams of making the AirAsia brand as big as Coca-Cola Company and the airline’s reach as significant as European LCC Ryanair. Thus, I think all his plan are possible to realize. And for me, AirAsia Company is good inspiration for who those want to improve or follow its business journey. HARVARD REFERENCING Based on, Amandak. , 2008, AirAsia Boss Has Really Big Plan [online], Malaysia, Available from http://www. jaunted. com/story/2008/3/24/201251/894/travel/AirAsia+Boss+Has+Really+Big+Plans, [Accessed 25th March 2008] Sen Ze & Jayne Ng 2008, Air Asia The Story, 2nd edition,