TECHNOPREANURSHIP

HARVARD BUSINESS SCHOOLS CASE STUDY 1

AIRASIA: FLYING LOW - COST WITH HIGH HOPES

FACULTY OF COMPUTER SCIENCE AND INFORMATION SYSTEM

GROUP MEMBERS :

SUSILO GIONO X14CS0013

NUR AYU WULANTARI X14CS0076

MUHAMMAD AMIRUL SYAFIQ A11CS0062

RIO MARLIMO SASTRIANI X14CS0008

DENI DIAN ISMAWAN X14CS0015

SUBMIT DUE DATE :

31st OKTOBER 2014

HARVARD BUSINESS SCHOOLS CASE STUDY 1

AIRASIA: FLYING LOW - COST WITH HIGH HOPES

A. Synopsis

Private entrepreneur Tony Fernandes took over the debt- ridden AirAsia airlines from the

Malaysian government in December 2001, just months after the 11 September 2001 terrorist

attacks. One month later, he relaunched the airline as South- East Asia’s first low- cost carrier

(“LCC”). By adopting the no - frills concept used by leading LCCs in the West, AirAsia became

an instant success. By 2007, not only was the airline ranked as the best LCC in A sia, but it had

also managed to increase profitability and expand its routes. Under the tagline “Now Everyone

Can Fly”, AirAsia has been able to maintain the lowest cost structure among its competitors.

Being innovative all the way down to the corporate bo ne, the LCC has also pioneered several

servi ces for its operation, such as I nternet check- in, Xpress Boarding and on -time guarantees.

It has also kicked off an ambitious plan that many other low - cost, short- haul carriers view as

risky: extending services to include long - haul routes through its sister airline, AirAsia X.

On 6 May 2008, AirAsia’s major local competitor, Malaysia Airlines (“MAS”) initiated an

unexpected price war by launching its “Everyday Low Fare” campaign, offering free fares for

domestic and short- haul flights on routes that were largely dominated by AirAsia. Amid

surging global oil prices and intensifying competition in the Asia-Pacific region, how can

AirAsia increase its competitiveness?

Question

1. Briefly describe the trends in the global airline industry.

2. Comment on the business- level strategy adopted by AirAsia. How has AirAsia

achieved cost leadership or differentiation?

3. Referring to Porter’s model of the five forces of competition, is the above strategy

suitable for AirAsia to achieve a better position in the industry? What are the risks of

using the strategy?

4. Identify the ways AirAsia can sustain its competitiveness through the business -

level strategy it has adopted.

Answer

1. There is 5 trends for the Global Airlines Industry;

a. It's a New Passenger Out There. – Airlines will need to build 'Social' pace to create

brand equity.

b. The Customer's World is Online and Offline. – Maneuvering between both of

Online or Offline holds the key to success.

c. Analytics – An 'Altimeter' for the airline business. Analytics is emerging as an

'altimeter' that will help the airline business stay aloft.

d. Changing the Course in Revenue Generation. – The ancillary route is an important

revenue generator for airlines today. Airlines must look at total revenue integrity

program that cuts across multiple processes including ticketing processes, e-

ticketing, departure control and customer relationship management.

e. Increased Focus on the Regulatory and Standardization Route. – Since new

regulations are a given for the global airlines industry, airlines must engage in a

compliance program that can optimize business processes and transform operations.

They will need to carefully look for a partner and a program that will be cost-

effective and help process optimization.

2. Air Asia is adopting Cost leadership strategy and Differentiation strategy or Hybrid

Strategy. This new hybrid strategy may become even more important--and more popular--

as global competition increases. Compared to companies relying on a single generic

strategy, companies that integrate the generic strategies may position themselves to

improve their ability to adapt quickly to environmental changes and learn new skills and

technologies. This would more effectively leverage core competencies across business

units and product lines and would also help produce products with differentiated features

or characteristics that customers’ value and provide these differentiated products at a low

cost, compared to competitors' products.

This is because of the multiple, additive benefits of successfully pursuing the cost

leadership and differentiation strategies simultaneously. Differentiation enables the

company to charge premium prices and Cost leadership enables the company to charge

the lowest competitive price. Thus, the company is able to achieve a competitive

advantage by delivering value to customers based on both product features and low price.

For instance Air Asia also become the official sign airline sponsor of the world famous

Manchester United Fooball club and AT & T William Formula One Team, Air Asia also

painting some of its aircraft with the club colours and sport stars. Air Asia also have

relationship with Tourism Malaysia. Not only about the product image air asia also doing

such kin of good image in humanity activities taken example when Air Asia become

transportation aid to cyclone-hit Myanmar in 2008, and donating free seats to china’s red

cross to raise funds for sichuan earthquake recovery and global concern about carbon

emission.

3. Referring to Porter’s model, there are five forces of competitition that shape every

industry and help derterminies an industry weakness and strengths. In term of Competitice

rivalry within an industry, many of aircraft industry that offers flights with lower price as

air asia company, such as Lion Air in Indonesia and Tiger airways in Singapore. Air asia

try to be winners between its competitiors. they must server the best and give satisfaction

to customer, its quite hight to AirAsia. While in term if threat of substituties, Customer

will choose the good choice as distance and prices, this is moderate to Air Asia.

In Term of Power of Buy, is quite high to Air Aisa, every industry are need a customer to

be success and gain a profit. Those comapines should offer the best services to be winner

in global competition. Then, power of supplier is a moderate to Air Asia, All of airlines

industries just have two options kind of airlines( boeing and Airbuss). Air Asia place

order form airbus o expend its routs to international routes so power of supplier may be

reduced as airbus profit may be influenced by AirAsia. In term of threat of new entranrs,

Air Asia expand their route into southest Asian countries, such as Indonesia, Singapore,

and Thailand. Air asia has closed to the government and sizable market in that area. Air

asia try to good reputation with low cost price and good serve of facility. In other hand the

other airways industry have huge investment to establish repution, but air asia focus on

that market.

The risk of using this strategy is, if the companies fail to implemented the porter strategy,

Air asia will lose some opportunites in the market. Low cost carier strategy must balance

with the facility also the management of technical details of Air Asia, so Air Asia will

winner in competition of airlines industries. Analisis SWOT are help Air Asia to identify

their business concept strategy with the competitiors by analize the strength, weakness,

opportunities and threat of the market.

4. The business strategy of airasia has inspire in the aircraft business, Air Asia can sustain

its competitiveness by maintaining its no frills, low cost carrier and expand their business

hubs through Asia and around the world. in Asia especially in my nation Indonesia, in

Asia especially in my nation Indonesia, Air asia has conquered the aircraft market by

affiliated of local corporation, Batavia. Its also happen in other southeast Asian region

such as Singapore and Thailand with Thailand’s Shin Corportaion. With their effective

sales and marketing strategy, Air Asia can simply beat their competitors in airlines

industry. Besides with their strong foundation and strategies, they continue to be the

lowest cost airlines in the market and always be the people's choice to buy their services.

The advantage of lowest price has made Air Asia sustainable growth through the business

and succeed along its competitors. Nevertheless, given its first mover advantage, cost-

leadership remains a viable strategy for Air Asia to maintain its leadership position in the

budget airline industry. The key is for Air Asia to strengthen other aspects of its

positioning, such as convenience and integrated lifestyle packages, apart from just

focusing on cost, so as not to be caught off-guard when escalating costs render it unable to

continue to sustain its cost-leadership position. It also has to leverage on its existing wide

reach of its brand name to monetize more areas of its services.